The S&P 500 has gained nearly 11% so far this month, and this rally is truly what seems to be – a bullish rally in the midst of a larger bear market.
And this, of course, brings us to the main issue that investors must answer now: where to put their money. Markets bottomed on March 23, almost four weeks ago, and that trough brought many stocks down to an attractive point of entry. The current rally has not pushed them back high enough to erase that; the current price plateau offers latecomers a chance to buy into the rally while prices are still attractively low.
So how to recognize the most compelling buying opportunities?
One way is to follow the insiders. The word may have an unsavory flavor, especially after recent allegations that several Senators made ‘inside trades’ just as the coronavirus lockdowns started. But in reality, insiders are just corporate officers and Board members, the men and women responsible to shareholders for running America’s publicly traded corporations – and who also, by virtue of their positions, have access to earlier and better knowledge of the factors that will move stock values. They do trade on that knowledge – and to help keep the playing field level, they are required to make their inside stock moves public. Following their purchases is a viable strategy for finding potentially profitable stock plays.
TipRanks has the tools to help you do just that. The Insiders’ Hot Stocks page shows which stocks top insiders are most active on, for both purchases and sales. You can sort insider trades by a variety of filters, including trading strategy. We’ve done some of the legwork for you, and pulled up three stocks with recent informative buy-side transactions. Here are the results.
Fortress Transportation and Infrastructure (FTAI)
The first company on our list today, Fortress Transportation, resembles REITs. Fortress buys, owns, and manages properties in the transportation industry, especially in the infrastructure segment. Where it deviates from the usual REIT format is in its other assets: Fortress also owns and operates the actual equipment in the transport niche, equipment like shipping containers, offshore drilling ships, and commercial jet aircraft. That last, commercial aircraft, makes up over 61% of the company’s asset portfolio. Fortress generates its profits through leases on its owned assets.
On the insider front, three informative purchases have swung sentiment on this stock strongly positive. Two were made by members of the Board of Directors; the smaller, by Kenneth Nicholson, for $215,700, and the larger, by Paul Goodwin, for $435,880. The truly huge purchase, however, was made by a 10% owner in the company – an institutional investor, the Washington State Investment Board, which laid down $19.9 million for a 2.353 million shares. The magnitude of these purchases are clear indicators of confidence in the stock.
As last year ended, FTAI finished with strong quarterly earnings. The 12 cents reported were 71% above the forecast, it was the third consecutive quarter to beat the forecast. Better yet, for investors, Fortress reported that, as of the end of 2019, 80% of its aviation equipment assets were leased out – and that the average remaining lease term was 29 months. This puts the company in a strong position to weather the coronavirus storm, as it guarantees income from half of the company’s assets for another two years.
In addition to a solid fiscal footing, FTAI offers a 33-cent quarterly dividend. At $1.32, the annualized payment gives the stock a yield of 14.4%, more than enough to attract investors now that the Fed has cut rates back to near-zero, and made sweeter by a 5-year reliable payment history.
Stephens analyst Justin Long is also confident in FTAI. He notes the stock’s high dividend, as well as its advantageous debt position, despite a heavy recent sell-off. At the bottom line, he writes, “We feel like the damage has been done with a draconian scenario being priced-in. We would also note FTAI is relatively well positioned in the aviation leasing industry with total debt to cap under 50% and no debt maturities until 2022… We also believe the infrastructure assets should drive substantial cash flow over the long term with FTAI continuing to opportunistically assess opportunities to monetize these assets…”
Long puts a Buy on this FTAI shares, and his $22 price target implies a powerful upside potential of 125%, another attractive feature to go along with the high-yield dividend. (To watch Long’s track record, click here)
Fortress has a Strong Buy rating from the analyst consensus, with 6 Buys outweighing a single Hold. The shares sell for $9.77, and the $21.43 average price target suggests that there is room for an impressive 118% upside growth in the coming 12 months. (See Fortress stock analysis at TipRanks)
Stich Fix, Inc. (SFIX)
Now here is an interesting niche; this small-cap company works to personalize online clothing shopping. The company’s platform allows customers to make stylistic preferences – and then receive periodic packages of clothing, selected by the company’s stylists. Once received, customers can choose to keep or return some or all of the clothes choices. It’s a unique take on eCommerce, combining data science, machine learning, and a personal touch to predict what customers will enjoy most.
Looking ahead, the company is expected to post a 15-cent per share loss in fiscal Q3, for the period in this month – and covering, in large part, the economic shutdown due to the COVID-19 epidemic.
But despite the tough path forward, two company directors have made multi-million dollar purchases in recent days. William Gurley spent $15.8 million on a 1 million share purchase this past Monday; Steven Spurlock spent $16.6 million on 1.05 million shares the same day. The two buys swung the sentiment need sharply into positive territory, and also show that both shareholders are willing to take advantage of current low prices to expand their holdings.
Youssef Squali, 5-star analyst with SunTrust Robinson, explains why this may be a good idea. Acknowledging that the company has sharply pulled back its Q3 and full year guidance due to the commercial disruptions of COVID-19, Squali also says, “While we recognize that demand trends are likely to worsen in 2Q and possibly 3Q before they start getting better in 4Q (our estimate), we believe that shareholders with a longer-term horizon will be rewarded given the company’s strong competitive positioning and sustainable business model…”
For that long term, Squali sees a fit to place $27 price target, implying 80% growth for the stock. In line with this, he maintains his Buy rating. (To watch Squali’s track record, click here)
The Moderate Buy analyst consensus view on this stock is backed by a near-even split of 8 Buys and 6 Holds. The $19.31 average price target indicates a 23% premium from the $15.70 current trading price of the shares. (See Stitch Fix stock analysis at TipRanks)
Public Storage (PSA)
Public Storage is well known for its chain of self-storage facilities across the US. In organization, PSA is a real estate investment trust, owning the properties and deriving income from leases and management fees.
In recent days, three company Board members – Avedick Baruyr, Wayne Hughes, and Gary Pruitt – each purchased a block of 5,000 shares, for the price of $471,250. The purchases show clear confidence in the stock. These purchases bring the insider buys of the past three months to well over $1.5 million dollars.
Public Storage came into 2020 with rising earnings, although results were just below the forecasts. Finishing calendar year 2019, PSA showed $2.84 in Q4 funds from operations, along with $598 million in total quarterly revenues. For the full year, FFO was $10.75, up 1.8% yoy, and revenue came in at $2.4 billion, up 1.4% from 2018. The numbers give the company a firm foundation, which it found it needed to face the dislocations in today’s economic landscape. Looking forward, PSA will be reporting first quarter results at the end of the month, and is expected to show $2.58 in FFO – a sequential decline of 9.2%.
In a bright spot, however, PSA is maintaining its dividend. The company has made the payments reliably for the last 11 years – an admirable record – and the current payment is $2 per share quarterly. This gives a payout ratio of 70%, indicating that the dividend is affordable at current income levels – and will likely stay affordable, even if FFO slips this year. The annualized payment of $8 per share makes the dividend yield 4.1%; not huge, but still double the average among S&P listed companies.
Turning to Wall Street’s view of the stock, we find that Merrill Lynch analyst Jeffrey Spector has recently upgraded his stance on PSA. Spector bumped his outlook from Neutral to Buy, and raised his price target to $267, suggesting a robust 36% upside. (To watch Spector’s track record, click here)
Backing his view, Spector wrote, “PSA remains well positioned in our view, with minimal debt coming due in 2020 and ~$400M cash on hand as of 4Q… PSA [has] ample liquidity to take advantage of acquisition opportunities that arise.”
Overall, PSA shares are still rated a “hold” by Wall Street’s analyst corps, based on an even 3-way split: 3 Buys, 3 Holds, and 3 Sells. The stock sells for $196.48 – and the average price target of $208.78 suggests only 6% upside. (See Public Storage stock analysis on TipRanks)
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