What we saw in the markets this week was particularly worrisome because the sell off was broad-based and even asset classes with low correlations between them appeared to be down. We are currently seeing mean reversion in full swing. As market participants who have invested through multiple cycles know, mean reversion often overshoots the mean. In other words, stocks can go from “strong buy” to “screaming buy” to “how can it get any cheaper” before they bottom. We haven’t yet approached the screaming buy phase yet as folks are already lining up to buy the dip, which has worked very well during the last decade.
I don’t think we see the quick rebound this time like we did after the COVID-19 related drop in early 2020. With monetary stimulus and quantitative easing out of the picture, all we have left now is fiscal stimulus in the form of the Build Back Better infrastructure plan, which still needs to win approval in the Senate. This does not mean that aren’t great opportunities out there for investors that are patient and see intermediate-term volatility as a way to build positions over time. In our special situations mid-month update last week we discussed a potential opportunity in the fintech company SoFi Technologies (SOFI), which managed to buck the trend last week with a gain of over 5% after it received regulatory approval to become a national bank holding company. We also discussed Coursera (COUR) in a new series we started publishing on Seeking Alpha on broken growth stocks. I am tracking a watchlist of 38 growth companies and plan to write about one each week as I explore them in more detail.
One of the companies in the “screaming buy” category showed up on our notable insider buys list this week. We like companies where the company is buying back its own stock and the insiders are also buying stock with their own money. We track these types of companies through a custom screen called The Double Dipper. The RV manufacturer Thor Industries (THO) was founded in 1980 through the acquisition of Airstream by Wade F. B. Thompson and Peter Busch Orthwein. Thor is the Norse God of thunder and lightening and also the word formed from the first two letters of each co-founder’s last names. Mr. Orthwein was previously the Chairman of Thor Industries and is now on the Board of Directors.
For the first time in over a decade of tracking insider transactions, we saw Mr. Orthwein purchase 10,000 shares of Thor last month at an average price of $103.41. He purchased an additional 10,000 shares last week at an average price of $98.54 right before the bottom fell out of the market and Thor declined more than 12% to a fresh 52 week low. Besides Mr. Orthwein, two other insiders also purchased shares during the last month. The company announced a $250 million share buyback on December 21, 2021 and increased its dividend for the 12th year in a row during fiscal 2022 ending in July 2022. The dividend yield is just shy of 2% at a payout ratio of 11.64%. The payout ratio is very low because the company had some unusually strong quarters during the pandemic as consumers shifted their travel preferences from flights, cruises and hotels to RVs.
The stock looks cheap with a forward P/E of 6 and a EV/EBITDA under 5. Just like investment banks and mortgage lenders, the market is assuming that Thor is likely to be at a cyclical peak for earnings as demand got pulled forward during the pandemic and the future might not be as rosy as the recent past. Bulls on the other hand, like Daniel Moser on Seeking Alpha, point to the company’s large backlog of orders that might provide a buffer for the company if consumer behavior changes post-pandemic.