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Insider Weekends: Déjà Vu

  • February 27, 2022

Investors sometimes believe that they should focus almost exclusively on what is going on with a company to inform their investment decisions and not pay much attention to the macro environment. This approach may work at times but can be detrimental when the macro environment is in a state of flux, where entire economies or industries might be impacted by the prevailing winds of change. We are very much in such an environment right now with the specter of higher interest rates on the horizon even as the West watches the Russian invasion of Ukraine. There are always pockets of opportunity even in a challenging macro environment (banks have done very well recently and so have commodities) and if you are not inclined to buy at the moment, you can continue to add to your watchlist. Having a well groomed watchlist on the ready can be invaluable when conditions turn favorable and allows you to act quickly to take advantage of the opportunity.

Reviewing the list of insider purchases this weekend, it felt like déjà vu and I had to go back to check to make sure I was editing the right post and had not inadvertently started editing an old one. Some of the companies on the list this week also saw insider buying in the week prior and we have discussed others in recent weeks. The purchase that caught my eye this week was the one by independent director Warren Stephens of the retail chain Dillard’s (DDS). Mr. Stephens purchased 20,000 shares of Dillard’s for $4.61 million. He is the CEO of the privately held investment bank Stephens. Founded in 1933 and based in Little Rock, Arkansas, Stephens took a small Arkansas-based discount retailer called Walmart public in 1970.

Mr. Stephens has been on Dillard’s board for nearly 20 years and when an independent director with an investing background makes an opportunistic purchase, I take notice. Mr. Stephen’s net worth is estimated at $2.9 billion and this purchase is a drop in the bucket for him but it signals confidence in the company considering his last purchase was in 2018 at much lower prices. He also purchased 100,000 shares of Dillard’s during the Great Recession in November 2007 for $17.52. While he was early with that purchase, as insiders usually are, Dillard’s went on to do very well coming out of that recession with gains of over 1,200% since his purchase compared to a gain of 196% for the S&P 500. It is also encouraging that Dillard’s announced a new $500 million buyback, representing nearly 10% of the company’s market cap when the buyback was announced on February 24, 2022. Last quarter Dillard’s announced a $15 per share special dividend that was payable to shareholders on December 15, 2021.

The company has no net debt on the balance sheet even after including capitalized leases and trades at a very low valuation of 4.3 times trailing EBITDA and a trailing P/E of 6.54. Retailers have benefited greatly from stimulus fueled increased consumer spending and from an omni-channel presence but the future may not be as favorable as the recent past. Earnings for each of the next two fiscal years are expected to decline sharply and Seeking Alpha author Adam Levine-Weinberg does a great job of outlining why the stock may be a value trap in this article.

Welcome to edition 608 of Insider Weekends. Insider buying increased last week with insiders purchasing $154.36 million of stock compared to $154.03 million in the week prior. Selling decreased to $815.51 million compared to $946.14 million in the week prior.

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