We haven’t seen a bear market since the financial crisis of 2008. Hopefully, the coronavirus trade will pass faster than the subprime meltdown.
Falling stock prices has lured more insiders into buying their company stock. We’ve seen an uptick in the number of buyers and transactions during the last two weeks. Corporate executives have keen insight as to how the coronavirus is or isn’t impacting their businesses, at least for now.
This is clearly a buyers’ market for stocks. That doesn’t mean prices are done falling. It does mean investors can be very picky and selective in which companies they consider purchasing. Owning Mercedes for Hyundai prices.
We were very selective in putting together our shopping list based on the past week’s list of insider purchases. Our criteria were simple, but meaningful.
- Companies we know by name
- At least two from the top of the management chain purchased
- They are not routine buyers
- And they spent big, at least six figures
Continental Resources, Inc. (CLR) Chief Financial Officer (CFO) John Hart has done nothing but sell or receive option awards since 2010. From December 2010 through May 2018, CLR’s head accountant sold more than $6 million of the Oil and Gas producer’s stock.
His sentiment changed dramatically on February 28, 2020. Hart bought 16,200 shares at $16.99 for a total of $275,286. As we type, the stock trades at $8.78. In hindsight, he probably wishes he waited a few weeks, but can’t sell for six-months anyway and might feel differently by then.
Hart was not alone at CLR, Chief Executive Officer (CEO) William Berry bought $1.65 million of Continental Resources on the 28th too. His only other purchase in the last decade was in December 2014. Other than that, it’s been all options, options, options.
Allscripts Healthcare Solutions, Inc. (MDRX) had the same combo of insiders buying. CEO Paul Black bought more than $250k and CFO Richard Poulton picked up $111k of the health information services company.
Neither executive has been a long-term buyer of the stock. Black and Poulton made similar purchases in December 2014 in the mid-$11s. Two-years later, the stock nearly doubled.
Between 2014 and March 5, 2020, the pair did nothing but sell MDRX shares and exercise options. Together, the CEO and CFO combined to unload more than 270,000 shares for more than $3.3 million.
A quartet of Planet Fitness, Inc. (PLNT) big wigs added 86,000 shares to their respective portfolios, going out of pocket for more than $5.5 million. CEO Christopher Rondeau spent $1.9 million, CFO Dorvin Lively acquired $900k, and Director Craig Benson $1.85 million.
Rondeau and Lively have done nothing but sell, sell, sell in the last three-years (plus exercise options). Combined, the CEO and CFO sold nearly 2.8 million shares, cashing in $136.4 million. Buying a single share for either would be a 180-degree change of heart.
It’s very likely these three stocks, much like the rest of the market, could go lower, perhaps much lower in the days and weeks ahead. The point of identifying companies with insiders’ changes of heart isn’t necessarily to buy now, but rather to start putting together a list of companies to consider buying when the corona coast is clear. Based on the cycle in China, my guess is the tide turns in mid-to-late April. That’s a lot of potential limit down days from here to there.