It can be difficult to gauge the strength of investment opportunities in this disconnected economic environment. Unemployment is high, earnings are cratering and valuation has gone out the window. Traditional metrics alone simply can't reveal the whole picture. You need more tools.
To this end, following the activity of those "in the know" – that is, looking at what corporate insiders are buying – could be an effective investing strategy.
"Corporate insiders" is a catch-all term that refers to corporate officers, board members and people/groups that own 10% or more of voting shares. Many of these people are typically tasked with steering their companies in the right direction. And because they usually have more in-depth knowledge of their companies and learn of developments before other investors, corporate insiders are required to disclose the purchase or sale of shares.
Insiders often set up regular programs of buying or selling. But unusual spurts of corporate insider buying can signal that now is the time to up the ante on a particular company.
We recently used TipRanks' Insiders' Hot Stocks tool to zero in on the stocks flashing such a signal. Here are six stocks with informative insider buying that investors should take a closer look at.
Disclaimer
Data is as of June 23.
Change Healthcare
- Market value: $3.7 million
- TipRanks consensus price target: $15.38 (25% upside potential)
- TipRanks consensus rating: Strong Buy
Change Healthcare (CHNG, $12.28) a technology company that provides software, analytics, network solutions and technology-enabled services to health care systems.
2020 has been cruel to this name, with shares off 25% year-to-date. But analysts and corporate insiders are about as bullish as can be.
In mid-June, CFO Fredrik Eliasson picked up $1.2 million worth of shares, adding 100,000 shares to the 40,000 he already owned.
Piper Sandler analyst Sean Wieland, who has an Overweight rating (equivalent of Buy) on CHNG shares, points out that the company's struggles could continue for a while, and that revenues might not bounce back until the fourth quarter of its fiscal 2021, which ends next March.
However, he says Change Healthcare's financial model is solid, and that there's room for upside when it comes to guidance. Moreover, CHNG is well positioned to ramp up growth in fiscal 2022 "if not before."
Weiland tells investors to buy CHNG and sell health care cloud-based data analytics firm Inovalon (INOV), saying he's "intrigued by the valuation disconnect between these two highly levered, healthcare IT roll-ups."
Weiland's $19 price target leaves room for 55% gains over the next year. Better still, all eight analysts covering CHNG stock that have weighed in over the past quarter say the stock is a Buy. For more information, check out the CHNG analyst consensus and price target page on TipRanks.
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Arconic
- Market value: $1.7 billion
- TipRanks consensus price target: $22.00 (38% upside potential)
- TipRanks consensus rating: Moderate Buy
Arconic (ARNC, $15.92) is best known for creating innovative products that shape industries and solve complex engineering challenges to transform the way people fly, drive and build.
Not one, not two, but four corporate insiders made informative buys over the past month. The largest of the purchases was made by Director William Austen, who bought more than $200,000 worth of shares.
Writing for Credit Suisse, analyst Curt Woodworth tells clients, "ARNC is a high-quality producer of aluminum alloy rolled products with significant leverage to secular growth in automotive and packaging, and a (long-term) recovery in aerospace." They see the third quarter as a "major inflection point" banking on Ford (F) and General Motors (GM) truck and SUV sharply accelerating.
Sure, macro conditions in the first quarter were rough, to say the least. But ARNC increased segment EBIT by 26% year-over-year, and grew margins by 3.1 percentage points, speaking volumes to Woodworth.
"We argue ARNC is a compelling growth story with strong positions … Strong (free cash flow) profile should allow for dividend policy to start in early 2021," writes Woodworth, who has an Outperform rating and $22 price target on shares, implying 38% upside over the next 12 months. If you'd like to see more analyst opinions about ARNC, check out its analyst page on TipRanks.
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Douglas Emmett
- Market value: $5.4 billion
- TipRanks consensus price target: $36.30 (18% upside potential)
- TipRanks consensus rating: Moderate Buy
Douglas Emmett (DEI, $30.69) is a real estate investment trust (REIT) that owns and operates about 18.3 million square feet of Class A office space and 4,161 apartment units within the premier coastal submarkets of Los Angeles and Honolulu. COVID-19 has certainly fueled headwinds within the real estate space, and indeed, DEI shares are still off by almost a third this year.
But at least a few people in the know see something to like about the long-term growth narrative.
Director Christopher Anderson did some corporate insider buying in early June, spending almost $1.3 million to acquire 42,800 shares, giving him more than 2.3 million shares in total.
And Piper Sandler analyst Alexander Goldfarb is bullish on DEI, though he admits the current market presents significant challenges for Douglass Emmett. "The almost near prohibition of new construction (not quite, but the NIMBYism and approvals are intense) allow for pricing power, but California's tradition of heavy regulation of the private market means that DEI's office and residential tenants have the option of living eviction free for the moment," he writes.
However, Goldfarb argues that management has made a point to highlight the distinction between office and retail space. In addition, the company's focus on small tenants means that most of its clients don't rely on an open floor plan, "and thus management doesn't see the same reconfiguration need as larger CBD tenants." Hawaii's quick response to COVID-19 also bodes well for the company, he writes.
Goldfarb has an Overweight rating on shares and a $35 price target – a little lower than the consensus of $36.30, though both indicate upside potential in the teens over the next year. Discover what the rest of the Street has to say about DEI.
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Selective Insurance Group
- Market value: $3.1 billion
- TipRanks consensus price target: $53.25 (3% upside potential)
- TipRanks consensus rating: Moderate Buy
Selective Insurance Group (SIGI, $51.84) is one of the largest property and casualty insurance groups in the U.S., and it boasts an "A" rating from AM Best. The company did miss the mark with first-quart earnings, but recent share-price weakness might be an opportunity for new money.
SIGI hasn't seen a lot of insider buying over the past month – just one purchase, in fact. But that one buy was a doozy. Near the end of May, Director William Rue snapped up 25,000 shares at $52.45 apiece, for a total of more than $1.3 million.
JMP Securities analyst Matthew Carletti likes the outlook for SIGI right now. He notes that while the company's operating earnings fell below expectations – triggered by significantly higher-than-expected catastrophe losses – that helped bring share prices down to attractive levels. He also points out that "the core ex-(catastrophes) accident year loss ratio was better than expected at 58% (vs. our 60% estimate)."
Carletti has a Market Outperform rating on SIGI shares, and a $65 price target that implies 25% upside ahead. For even more insights on SIGI, take advantage of TipRanks.
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Camping World Holdings
- Market value: $2.4 billion
- TipRanks consensus price target: $18.17 (33% downside potential)
- TipRanks consensus rating: Moderate Buy
Camping World Holdings (CWH, $27.11) takes its place as the largest and only national chain of RV-centric retail locations in the U.S. While a shakeup in leadership was alarming for investors, some believe that these moves will pay off in the long run.
This is evidenced by the recent insider activity. In less than a month, Camping World CEO, Director and 10%-plus stakeholder Marcus Lemonis made three separate purchases, spending a little more than $850,000 on CWH stock. President and Director Brent Moody also bought a small batch of shares worth roughly $33,000.
Stephens analyst Rick Nelson reminds investors of CFO Mel Flanigan's departure, effective June 30. Taking over the position is Karin Bell, who was the company's first hire back in May 2003 and is currently its chief accounting officer. He notes that she'll be based at Camping World's headquarters, rather than its outpost in California.
"Prior to CWH, Ms. Bell held public accounting and treasury positions for 16 years. While disappointing to lose Flanigan after just 17 months, we think accounting function will be in good shape under Bell's leadership with strategic TBD," Nelson writes.
"Separately, we think the RV business is strong," he writes. "Our checks with private RV dealers reveal record monthly performance in May and we think CWH is no exception with aggressive cost cuts also driving profitability. RVs provide a safe and affordable travel option for consumers, avoiding airplanes and hotels."
Just be cautious. Shares have run up since this insider buying, which took place during the first half of June and late May. That has brought CWH shares well above the analyst consensus of $18.17 per share.
That said, Nelson still sees a little more upside. In addition to an Overweight rating, he has a $29 price target that implies another 7% or so more gains from here. Check out other analysts' price targets on TipRanks.
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Arcturus Therapeutics
- Market value: $907.8 million
- TipRanks consensus price target: $51.33 (16% upside potential)
- TipRanks consensus rating: Strong Buy
Arcturus Therapeutics (ARCT, $44.30), a clinical-stage messenger RNA medicine firm, focuses on the discovery, development and commercialization of therapies for rare diseases and vaccines. And several members are optimistic about this health care stock's future after the company achieved a major milestone.
Insider buying reflects similar optimism among the company's officers. In just the past few days, Arcturus' CEO, CFO and finance VP all bought in. CFO Andy Sassine made the largest purchase, spending $148,700 on 5,000 shares.
On June 5, ARCT announced it had dosed its first healthy volunteer in its Phase 1 study evaluating ARCT-810, its lead mRNA therapeutic candidate for the treatment of ornithine transcarbamylase (OTC) deficiency – a rare disease that results in "excessive accumulation" of ammonia in the blood.
H.C. Wainwright analyst Ed Arce thinks this could be a key inflection point for the company.
"We continue to view ARCT-810 as a highly promising drug candidate for OTC deficiency (OTCD), based on compelling preclinical data," Arce writes. "With its lead program now in clinical development, Arcturus joins a short list of clinical stage mRNA companies, including Moderna (MRNA), BioNTech (BNTX), Translate Bio (TBIO) and CureVac."
In preclinical studies, ARCT-810 has already demonstrated robust gene expression in periportal hepatocytes – an essential factor for the efficient delivery of the mRNA. Currently, there are no available OTC deficiency therapies, and the condition affects roughly 10,000 people globally.
Arce has a Buy rating and $62 price target on ARCT shares – a 40% gain from current prices. You can learn more about the analyst community's views on ARCT via TipRanks' consensus breakdown.
Maya Sasson is a content writer at TipRanks, a comprehensive investing platform that tracks more than 5,000 Wall Street analysts as well as hedge funds and insiders. You can find more of their stock insights here.
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