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Recent Insider Cluster Buys Reveal Potential Value Opportunities

A review of CEO and CFO trades over the past thee months

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Jan 05, 2022
Summary
  • Despite U.S. stock market indexes hitting new highs, some well-informed insiders are buying.
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It is good idea to review what insiders are buying on a regular basis as it is a solid source for investment ideas. It can be argued that someone putting their money at risk is a lot better than opinions by talking heads on CNBC and the like.

Nejat Seyhun, a professor and researcher in the field of insider trading at the University of Michigan and author of "Investment Intelligence from Insider Trading," found that when executives bought shares in their own companies, the stock tended to outperform the total market by 8.9% over the following 12 months. Additionally, legendary investor Peter Lynch once observed that, "Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise."

Insiders are prevented from buying and selling their company stock within a six-month period, so they buy stock when they feel the company will perform well over at least the medium term (one to three years).

In particular, key people that should be closely watched are the CEO and chief financial officer. Typically, they are the most informed of all insiders. A search of the GuruFocus database for recent significant insider buying by both CEOs and CFOs yielded the following stocks:

Ticker

Company

Current

Price

CEO Value

Buying

CFO Value

Buying

Date

Insider Cluster

Buying

Insider Value

Buying

RIVN

Rivian Automotive Inc.

$94.84

9,997,650

191,100

2021-11-15

10

18,403,008

ET

Energy Transfer LP

$9.02

600,067.69

500,051.44

2021-12-10

5

122,363,339.45

CLF

Cleveland-Cliffs Inc.

$24.27

988,500

206,550

2021-12-13

6

1,714,050

RNR

RenaissanceRe Holdings Ltd.

$164.06

2,162,100

490,076

2021-11-05

5

4,359,631.19

KD

Kyndryl Holdings Inc.

$18.03

996,930

248,440.50

2021-11-29

3

1,745,876

ETWO

E2open Parent Holdings Inc.

$10.75

1,146,400

114,540

2021-10-21

9

1,411,180.10

VCTR

Victory Capital Holdings Inc.

$36.27

1,017,828

259,650

2021-11-29

4

2,254,528.91

PRM

Perimeter Solutions SA

$14.41

2,229,570

1,964,160

2021-11-09

9

13,468,970

CMTG

Claros Mortgage Trust Inc.

$16.85

6,905,117.38

373,000

2021-12-17

8

8,024,997.38

There are some interesting ideas on this list that are worth highlighting.

Rivian Automotive Inc. (

RIVN, Financial) is a recently public, high-profile electric vehicle manufacturer. Most of the insider buying is likely connected to the initial public offering, when insider shares are converted to public ones. As a result, I would not pursuse Rivian currently as it looks very overvalued.

Energy Transfer (

ET, Financial) looks interesting as the stock is bouncing off 52-week lows. The company recently lost a court case, resulting in negative publicity. The fact insiders are being optimistic about its prospects is good sign. While the stock has value potential, it looks high risk due to its debt level. The company pays a good dividend of 6.74%.

1478786180127465472.png

Cleveland-Cliffs (

CLF, Financial) is also an interesting stock that has been doing very well. Steel demand is up due to infrastructure buildout and tariffs on imported steel is increasing the price. As a result, the stock has good investment potential.

1478786544402767872.png

RenaissanceRe Holdings (

RNR, Financial) looks undervalued. As I discussed previously, It's a high-quality company that has value potential.

1478786662669557760.png

Victory Capital Holdings (

VCTR, Financial) is an asset management company. The GF Value Line is indicative of some overvaluation, but given insider buying this can be explored further.

1478786863694159872.png

Kyndryl Holdings (

KD, Financial) was spun off of IBM (IBM, Financial) recently. It operates data centers for other companies. While business is declining as more and more companies move to the cloud, the stock looks cheap and is down substantially. As such, the neglected, contrarian pick could be worth a look.

1478789943957463040.png

E2open Parent Holdings (

ETWO, Financial) is an end-to-end and cloud-based supply chain management and software-as-a-service platform. It was bought to the market via a special purpose acquisition company, which has rolled up some supply chain management software company. It's too early to tell if it will succeed. Currently it's burning cash and is not my cup of tea.

1478792706439323648.png


Perimeter Solutions (

PRM, Financial) is a chemical manufacturer for firefighting products and lubricant additives.

The Fire Safety business includes formulation and manufacturing of fire management products along with services and pre-treatment solutions for managing wildland, military, industrial and municipal fires. Given all the wildfires happening recently, this looks like a growth business.

The Oil Additives business produces high-quality phosphorous pentasulfide utilized in the preparation of zinc dialkyldithiophosphate-based lubricant additives, providing critical anti-wear solutions for end customers.

Perimeter recently went public. It's a roll-up put together by private equity.

Guru

Chase Coleman (Trades, Portfolio) has a big position in the company. Perimeter looks interesting and should be explored further since it is profitable and cash flow positive.

1478795152536444928.png

Claros Mortgage Trust (CMTG) is a recently formed mortgage real estate investment trust focused primarily on originating senior and subordinate loans on transitional commercial real estate assets located in major markets across the U.S. It is trading slightly below tangible book value. It pays an 8% dividend, so the company is a candidate for an income stock, but mREITs are risky. As a result, the stock could be a candidate for a small position in a well-diversified portfolio.

1478798673000341504.png

  • CEO Buys, CFO Buys: Stocks that are bought by their CEO/CFOs.
  • Insider Cluster Buys: Stocks that multiple company officers and directors have bought.
  • Double Buys:: Companies that both Gurus and Insiders are buying
  • Triple Buys: Companies that both Gurus and Insiders are buying, and Company is buying back.

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Disclosures

I am/ we are currently short the stocks mentioned. Click for the complete disclosure
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