Company executives usually talk an optimistic game. When they put their money where their mouth is, that’s when I pay attention.
Hogan had sold $46 million of Align stock in August 2021, after which the stock declined about 71% in 16 months. He bought some Align shares in May of this year, and more in November.
If you believe that corporate CEOs know more about their companies than anyone else does, Hogan’s purchases this year are a bullish omen. Three Align directors have also bought shares this year, though in smaller amounts than Hogan (between $200,000 and $300,000).
The company, based in Tempe, Arizona, makes Invisalign clear dental aligners, which have proved popular with dentists and patients. Its 10-year sales growth rate has been about 23% a year. Its balance sheet is strong, with debt only 3% of the company’s net worth.
The stock is on the expensive side, selling for 31 times the past four quarters’ earnings. However, that’s less expensive that the stock’s typical multiple over the past decade, which is 40. I’m inclined to think that Align is a timely buy.
At Black Stone Minerals LP (BSM, Financial), company chairman Thomas Carter Jr. spent just under $1 million to buy his own company’s shares in November. Carter now owns about 14.1 million shares, worth about $260 million as of Dec. 2.
Based in Houston, Black Stone is in the oil and gas business, yet it doesn’t operate a single rig. It owns mineral and royalty interests on land in 40 states, with concentrations in Alabama, Georgia, Texas, Oklahoma and North Dakota. Altogether it owns rights on more than 20 million acres.
The chief attraction of the stock is its whopping dividend yield, currently 8.4%. The company pays out most of its profits in dividends.
As for capital gains, there have hardly been any in the past decade: the stock is about where it was 10 years ago. But I think there may be some capital gains in the next few years, as the oil industry continues to recover from its hideous six-year slump in 2014 to 2020.
At less than 10 times earnings, the stock seems attractively valued to me. And debt is low, only 5% of Black Stone’s net worth. One warning: This stock is a master limited partnership, so owning it would complicate your tax return.
In November, Patrick G. Ryan, the 85-year-old founder and chief executive officer of Ryan Specialty Holdings Inc. (RYAN, Financial), made seven purchases of his own company’s stock, spending more than $55 million. The company is a wholesale brokerage and specialty insurance firm.
Ryan can afford it. According to Forbes, he is the 220th richest man in the world, with net worth of $8.7 billion. He and his wife has given almost $200 million to Northwestern University. He also owns a part interest in the Chicago Bears and is a major donor to the Art Institute of Chicago.
Should you invest alongside Ryan? It’s tempting, given his success. But I wouldn’t. The stock sells for 91 times recent earnings and 32 times the earnings analysts expect in 2023. Those are high ratios. Also, debt is high at 483% of the company’s net worth.
This is the 64th column I’ve written about trades by company executives. I can tabulate 12-month results for 54 of them – all those written from 1999 through a year ago. I can’t find some prices for the oldest ones (written in 1997 and 1998). And 12 months haven’t yet expired for the four newest ones.
The stocks I’ve recommended based on insider buying have shown an 8.7% return on average. That’s better than the 7.3% average return for the Standard & Poor’s 500 Total Return Index over the same 54 periods.
Stocks that I said to avoid, even though insiders had bought shares, have performed 24.9 percentage points worse than the index.
Stocks where I noted insider sales have underperformed the index by 1.4 percentage points.
So far, so good. But there’s one more little wrinkle. There were 14 stocks where I noted insider purchases, but didn’t give any comment, or only an ambiguous comment. Those stocks have beaten the index by 16.2 percentage points.
Bear in mind that my column results are hypothetical and shouldn’t be confused with results I obtain for clients. Also, past performance doesn’t predict the future.
John Dorfman is chairman of Dorfman Value Investments in Boston, Massachusetts. His firm or clients may own or trade the stocks discussed here. He can be reached at [email protected].