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John Dorfman
John Dorfman
Articles (112)  | Author's Website |

Insiders Buy Shares at Newell and Live Oak

Expect major changes at Newell Brands now that Carl Icahn has a spreading beachhead there

September 12, 2018 | About:

Expect major changes at Newell Brands Inc. (NYSE:NWL) now that Carl Icahn (Trades, Portfolio) has a spreading beachhead there.

The Hoboken, New Jersey, company makes a wide variety of well-known consumer products such as Calphalon cookware, Dymo labelers, Elmer’s glue, Graco cribs, Goody hair products, Jostens rings, Rawlings baseball gloves, Rubbermaid storage containers and Sharpie markers.

Last month, Icahn confirmed that Icahn Associates Holdings has purchased approximately 8% of Newell’s stock. Since Icahn has a record of shaking up companies, frequently to the benefit of shareholders, that’s significant news.

Brett C. Icahn, Carl’s son, purchased 110,000 Newell shares for $2,296,800 on August 9.

Two of Icahn’s other associates, Courtney Mather and Patrick Campbell, bought about $1 million and $500,000 worth of Newell stock last month. The two men were nominated by Icahn to sit on Newell’s board, and Newell agreed to that step back in March.

Not all of the insider buying came from Icahn and his lieutenants. Michael B. Polk, Newell’s CEO since 2011, bought 10,000 shares last month for about $206,000. Polk had also purchased shares earlier this year. He owns more than a million shares, valued at more than $24 million.

Ralph Nicoletti, the chief financial officer, bought some additional shares earlier this year.

Tangerine

I like Newell stock because its valuations are cheap in an expensive market. It sells for less than 14 times earnings (versus 21 for the Standard & Poor’s 500 Index) and 0.7 times book value, or corporate net worth (compared to 3.5 for the S&P 500).

Also, Newell is a tangerine – a company that can easily be divided into discreet sections. Spinoffs or partial spinoffs of subsidiaries may bring to the surface some value that’s been hidden.

Finally, Newell offers a 4.3% dividend yield, and the dividend looks reasonably secure.

Mixed Message

Insider trades are giving a mixed message at Live Oak Bancshares Inc. (NASDAQ:LOB).

CEO James “Chip” Mahan III has been buying. The CFO, S. Brett Caines, has been selling.

Last month Mahan, who founded the bank in 2008, bought just shy of 100,000 shares, worth about $2.9 million at current quotes. He now owns about 6 million shares, worth about $178 million.

Caines sold approximately 30,000 shares last month but still has more than 263,000.

As an old adage says, there are many reasons to sell a stock, but only one reason to buy. In my opinion, one would do well to side with Mahan and buy these shares.

Live Oak is known as a “direct bank.” It doesn’t have a network of branch offices. It specializes in loans to small businesses – originally just veterinarians, but now members of 16 specific professions including funeral homes, beverages and health care.

According to Wikipedia, Live Oak is one of the three largest U.S. issues of loans guaranteed by the Small Business Administration. The other two are much larger banks – Wells Fargo and U.S. Bancorp.

A return on assets (ROA) of 1.0% or more is usually considered good for a bank. The ROA at Live Oak last year was 3.9%.

Yet the stock is inexpensive at about 13 times earnings.

The Record

Clearly, I believe that investors should watch what corporate insiders do with their own companies’ stock: I’ve written 47 columns on the subject since 1997, including this one.

I’m able to calculate 12-month results for 37 columns. Four are too new, and I can’t find prices for some stocks I wrote about in 1997 and 1998. However, my results are complete since the beginning of 1999.

In that time, I’ve recommended 66 stocks that exhibited insider buying. They have beaten the S&P 500 by 3.4 percentage points on average in the following 12 months.

I don’t always recommend buying when insiders do, however. In 22 cases I’ve suggested that investors avoid a stock, despite insider purchases. In those cases, the stocks have trailed the index by 28.4 percentage points.

So far, so good. But my record isn’t all roses.

I’ve noted insider selling in 28 cases, and suggested explicitly or implicitly that investors should stay away. Yet those stocks have beaten the index by 2.3 percentage points. As I said above, there are many reasons to sell. So, selling isn’t as good an indicator as buying.

Finally, there were 11 stocks where I took note of insider buys, but made no comment or an ambiguous comment. Those darned 11 stocks beat the S&P by an average of 16.3 percentage points.

Disclosure: I have no positions, long or short, in the stocks mentioned this week, either for myself or for clients.

John Dorfman is chairman of Dorfman Value Investments LLC in Newton Upper Falls, Massachusetts, and a syndicated columnist. His firm or clients may own or trade securities discussed in this column. He can be reached at [email protected].

About the author:

John Dorfman
John Dorfman founded Dorfman Value Investments in 1999. Previously he was a Senior Special Writer for The Wall Street Journal, executive editor of Consumer Reports, and a managing director at Dreman Value Management. His syndicated column appears on Tuesdays on this website and also in the Pittsburgh Tribune Review, Ohio.com, Virginian Pilot, and Omaha World Herald.

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