Insiders are Loading Up on These 3 Pullbacks

Jul 1, 2022 at 2:00 AM
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    Insiders are Loading Up on These 3 Pullbacks

    For many investors, that Fourth of July weekend can’t come soon enough.

    In the coming days we’ll be reminded often that U.S. stocks turned in their worst first half performance since 1970.

    To some, this will serve as notice to stay on the sidelines until market conditions improve. Others will see it as an opportunity to capitalize on discounted share prices in hopes of better times ahead.

    Those investors that choose to go on a bargain-hunting adventure must decide which companies are truly oversold and which still have a significant downside.

    A good approach is to see what clues corporate insiders are dropping. That’s because executives, board members, and influential institutions often have the best insight into whether a stock is undervalued relative to future growth.

    Based on recent insider buying activity, a list of the most bullish candidates should include these three names.

    Did Warren Buffet Buy Occidental Petroleum Stock?

    Shares of Occidental Petroleum Corp. (NYSE: OXY) recently slipped about $20 from their post-Covid peak as concerns that Fed rate hikes could lead to lower oil demand and prices. It didn’t take long for Berkshire Hathaway to pounce on the opportunity.

    The Warren Buffet-led company purchased another $44 million worth of the oil producer’s stock on June 23rd when it was trading in the mid-$50’s. It marked the third time in less than a week that the institutional investor bulked up on its Occidental position. Trades executed on June 17th and June 22nd added more than 9.5 million shares worth approximately $529 million to Berkshire’s position.

    With over 153 million Occidental shares now in the portfolio, the Oracle of Omaha now owns 16.4% of a stock that fell below $10 during the early days of the pandemic. This makes Berkshire Hathaway the largest institutional holder of Occidental with ETF big dogs Vanguard Group and Dodge & Cox as the other major institutional owners.

    What Caused the Big Spike in GMS Stock?

    GMS Inc. (NYSE: GMS), short for Gypsum Management & Supply, is a mid-cap distributor of interior building products such as ceilings, wallboard, and related materials for both commercial and residential construction. With mortgage rates on the rise and the housing market potentially cooling, the stock slipped as much as 42% away from its December 2021 record high earlier this month.

    That’s when one heavy-handed insider decided enough was enough. Connecticut-based investment group Coliseum Capital Management bought almost 200,000 GMS shares over a two-day stretch that began June 22nd. Average execution prices were in the high $30’s.

    At least for now, the move has proven to be well-timed after the stock ran above $46 this week. The high-volume buy was the first insider purchase of GMS since May 1st when President and CEO John Turner acquired more than 20,000 shares when restricted stock units (RSUs) vested.

    The timing of Coliseum’s purchase coincided with the company’s release of fiscal fourth-quarter financial results. GMS posted a 38% jump in sales and earnings per share (EPS) that more than doubled year-over-year driven by strong residential demand and higher pricing. Both the top and bottom-line figures were records.

    The performance and management’s upbeat long-term outlook gave Coliseum the confidence to boost its GMS position to more than 6.1 million shares for a 14% stake. It also prompted several sell-side analysts to reiterate their buy ratings on the stock including Raymond James which set a Street-high $70 price target.

    Are Company Insiders Buying Enviva Stock?

    Industrial wood pellet producer Enviva Inc. (NYSE: EVA) soared to an all-time high above $90 in April 2022 on strong demand for renewable, sustainable energy sources in the face of surging crude. Then profit-taking, lower oil prices, and recession fears kicked in, sending the stock under $60 for the first time since October 2021.

    Three high-profile executives decided to pounce on the selloff. Chairman and CEO John Keppler got the ball rolling on June 23rd by scooping up nearly $1 million worth of Enviva to bring his ownership above $41 million. The same day, CFO Shai Even bought an even 4,300 shares at a weighted average price of $58.85. President Thomas Meth also decided to buy that day adding 8,600 shares at a similar price.

    The trifecta of insider buying activity was a rare event that investors should take note of. When multiple members of a leadership team buy stock in the company they so intimately know, it signals a collective confidence about its long-term growth prospects.

    Although Enviva is expected to deliver lower profits this year, 2023 is poised to be a rebound year. Wall Street is projecting that EPS will more than double in 2023 amid rising demand for clean energy and favorable pricing. Earlier this month, RBC Capital gave the stock a $78 price target which implies about $20 upside from where the recent insider purchases were made.

     

      

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