Of the many factors that investors consider when looking into potential investment opportunities, one of the most common is, “Who else has been buying and selling this stock?”
Whether we look at data from company insiders, investing gurus or the general market, it’s possible to unearth a variety of information on stocks based on who wants to buy them and who doesn’t.
Insider buying can be a particularly useful reference because insiders are the people who are the most familiar with their companies, meaning they are privy to inside knowledge that retail investors have no hope of digging up. Thus, when insiders buy shares of their company’s stock on the open market, it can be a positive signal.
According to GuruFocus’ Insider Cluster Buying data, there are three stocks that stand out as of this writing due to having high levels of insider buying over the last three months despite signs that their businesses are struggling: Hanesbrands Inc. (HBI, Financial), Enviva Inc. (EVA, Financial) and Macerich Co (MAC, Financial). Let’s take a closer look at these businesses to see what might have inspired such confidence from insiders.
Hanesbrands Inc.
There have been eight insiders buying shares of Hanesbrands Inc. (HBI, Financial) during the past three months, with the largest buys coming from CEO Stephen B. Bratspies (30,000 shares on Sept. 6) and director Cheryl K. Beebe (11,494 shares on Sept. 1). As the below chart shows, this represents a huge spike in insider buys compared to the past five years:
This American multinational clothing company specializes in making cheap but comfortable clothes. Its popular brands include Hanes, Champion and L’eggs. The stock has been on a slow but steady downtrend since mid-2015 as the company has struggled to grow among strong competition. In fact, while revenue per share has improved slowly, earnings per share has lagged:
While Hanesbrands may not be growing, its earnings have been relatively predictable over the past few years. When coupled with a dividend yield of 9.09% at a payout ratio of 0.47, the stock has potential as an income play, though the company has not raised the dividend since 2017 due to lack of growth. In its earnings reports, the company says it is investing in strategic initiatives such as global brands growth as well as supply chain optimization.
Enviva Inc.
Enviva Inc. (EVA, Financial) has also seen eight insiders buying shares over the past three months, with three of them making more than one transaction. The largest buys were from director Jeffrey W. Ubben (200,000 shares on Oct. 12, 76,446 on Oct. 14 and 25,000 on Oct. 20) and director John C. Bumgarner Jr. (15,000 shares on Oct. 12 and 3,288 on Oct. 13. This is by far the biggest spike in insider buying for this stock over the past five years:
Enviva is a rather unique company that takes low-quality wood from the timber forests of the southeastern U.S. that would otherwise be discarded (such as dead branches, knobbed pieces and treetops) and turns them into wood pellets that can be used in place of coal for energy generation. With operating and net margins having dropped to the negatives, the company is not profitable at the moment.
However, as the demand for more sustainable energy grows, Enviva’s wood pellets fill a unique niche in that they are sustainably harvested and produce approximately 85% less carbon over their lifecycle than coal while being able to serve as a direct replacement for coal in many existing energy plants. Thus, it could play an important role in the energy transition.
Macerich Co
In total, there were six insiders buying shares of Macerich Co (MAC, Financial) over the past three months, with one insider making more than one transaction. The top insider buyers of the stock were president Edward C. Coppola (50,000 shares on Sept. 23) and CEO Thomas E. O’Hern (22,200 shares on Sept. 19 and 12,820 on Sept. 23). The five-year insider trade chart shows a much bigger spike in insider buying occurred in March 2020, when the stock was even cheaper than it is as of this writing:
When it comes to Macerich, many people did not expect this American shopping center REIT to survive the Covid-driven economic downturn due to its truly astronomical levels of debt. In the end, though, it did manage to dodge bankruptcy by the skin of its teeth while several peers went belly-up, going on to lower its debt.
One of the big reasons investors site for avoiding this stock is the fact that its debt situation and post-Covid recovery have both been worse than peers such as Simon Property Group (SPG, Financial) and Tanger (SKT, Financial). However, Macerich is making strides in the right direction by shoring up its balance sheet with asset sales, and the price-to-funds-from-operation ratio of 6.98 is about half of the industry median, so it’s still pretty cheap all things considered.
