The COVID-19 pandemic is putting a damper on economic activity around the world, and threatening both an end to the economic expansion of the past decade and a new recession much earlier than anyone had anticipated. COVID-19 has, in that respect, been a Black Swan event for the financial markets.
This brings us to the question: how do you find investment-grade stocks in a volatile market? There isn’t one sure answer; plenty of investment strategies can steer you toward profits. But there is one possibility that might make investing easier – just follow the insiders.
Insiders – the corporate officers, board members, and others ‘in the know’ – don’t just manage the companies, they know the details. Legally, they are not supposed to trade that knowledge, or to blatantly trade on it, and disclosure rules by government regulators help to keep the insiders honest. Their honest stock transactions, however, can be highly informative. These are the people with the deepest knowledge of particular stocks. So, when they buy or sell, especially in bulk, take note!
We’ve used the TipRanks Insiders’ Hot Stocks tool to find three stocks that the insiders like – the shares that they are grabbing now – despite the bear market. Let's take a closer look.
First up is Diamondback, a Texas oil company operating in the Permian Basin, which has made Texas once again into one of the world’s premier oil producing regions – and made the US a net exporter of petroleum and petroleum products. Diamondback is a mid-sized oil player, boasting a market cap of $3.26 billion and production figures in excess of 130,000 barrels of oil equivalent per day.
FANG performed well in the final quarter of 2019, bringing in $1.104 billion in revenue and $1.93 in EPS. Both numbers beat the estimates, and gave the company a solid position to start from when the bear market started. The quarterly numbers were good enough that management increased the company’s dividend payment, nearly doubling it, from 19 cents to 37.5 cents. The new dividend annualizes to $1.50 per share, and gives the stock a yield of 7.3%.
A firm foundation and a strong dividend return are likely factors in the decision by Travis Stice, CEO of the company, to spend over $486,000 on 17,146 shares earlier this month. His purchase is the largest insider transaction on this stock, by far, in the past three months. The purchase brought Stice’s total holdings in FANG to more than $8.8 million.
Covering the stock for Credit Suisse, analyst William Featherston sees FANG holding clear advantages to maintain its position in today’s energy market conditions. He writes, “Recognizing sub-$40 oil does not work for any major producers in the long-term (including Russia and Saudi Arabia), we believe investors should be screening for E&Ps with low-leverage, no significant near-term maturities, and those low on the cost curve capable of funding maintenance capex and the dividend at $40-45 WTI. FANG screens relatively well on all these measures even under today’s depressed futures strip prices.”
Featherston rates this stock a Buy, with a $52 price target indicating a whopping 128% upside potential.
All in all, FANG has received 17 recent reviews, including 14 Buys and only 3 Holds, making the analyst consensus here a Strong Buy. Shares are selling for a discounted $22.86, and the average price target of $77.13 suggests an impressive upside potential of 230%.
Next on our list is a penny oil stock. Northern has mineral rights on 165,000 acres of land, and has operating interests in over 2,500 drilling well sites. The company’s property holdings sit on top of a huge proven reserve – over 163 million barrels of oil equivalent.
Some insiders have been buying shares during the market sell-off. Bahram Akradi, of the Board of Directors, bought up $397,000 worth of stock, in two blocks, increasing his total holding to a value exceeding $13 million. And Robert Rowling, also a Board member, made a single purchase worth $840,000. Rowling was already a 10% owner of the company; his total holding is now valued over $67 million.
Adding to the good news, Northland Securities analyst Jeff Grampp updated his notes on NOG, reiterating his Buy rating and setting a price target of $1.50. Grampp’s target suggests an upside of 103%.
In his comments on Northern, Grampp wrote, “Management is prioritizing debt reduction with weak prices and while the short-term reaction may be negative, long-term NOG looks favorable. It is capable of generating $100MM+ of FCF at $35/ BBL in 2020 and should be positioned to capitalize on potential acquisition opportunities.”
With NOG, we are truly looking at a penny stock. The shares are trading at a remarkably low 73 cents, but the $1.25 average price target gives an indication of the company’s potential strength, with an 69% upside. The shares have 1 Buy and 1 Hold rating set in recent months, making the analyst consensus rating here a Moderate Buy.
Last but not least is computing giant Dell Technologies. CEO Michael Dell is perhaps the ultimate insider on this company – and this month, he dropped $26 million on a block of 828,199 shares. His purchase brings his total holding in the company to $44,850,000 – a clear sign of confidence.
Dell showed a strong Q4 to finish off 2019, reporting a 14% sequential gain in EPS to $2 per share. Revenues gained more modestly, but still reached $24.13 billion. The Services segment was the big driver in revenues, gaining almost 14% and reaching $5.88 billion. The company’s Product and Infrastructure divisions both saw revenues fall year-over-year. Dell’s balance sheet showed an increase in cash on hand, to $10.17 billion.
Dell still has substantial long-term debt since acquiring EMC in 2015 for $67 billion, although it reported substantial headway in paying down that debt. In Q4, Dell paid $1.5 billion towards the debt, part of $5 billion paid in fiscal 2020. Since closing the deal, Dell has paid down a total of $19.5 billion, and as of the end of January, had a total of $44.32 billion in outstanding debts.
5-star analyst Amit Daryanani doesn’t see Dell’s debt as a major problem, while he does see the company’s overall position as solid. He says of the company: “DELL doesn’t expect COVID-19 to materially impact demand trends in FY21 though they do see a more severe seasonal revenue drop in FQ1… Given the attractive valuation and potential for better trends on storage post midrange refresh we are sticking with our Outperform rating…”
Along with his Buy-side stand, Daryanani gives the stock a $60 price target, suggesting an upside potential of 65%.
DELL shares keep a Moderate Buy from the analyst consensus, based on 5 Buy ratings and 4 Holds set in recent weeks. The stock sells for $36.66 per share, and the average price target of $51.78 implies room for 41% upside growth in the coming 12 months.
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