Corporate insiders are moving decisively towards defensive plays, and that should tell the rest of us something important. The immediate reason is obvious, of course: Thursday saw a 9% drop on Wall Street, as all three major indexes – S&P 500, Dow Jones, and NASDAQ – collapsed on coronavirus fears. It was the worst market collapse since 1987. The spreading epidemic has been officially raised to pandemic status, and doubts are growing about early assumptions about the disease’s lethality and communicability; officials are worried that COVID-19 is more easily transmitted, and more lethal, than previously thought.
The bigger issue, however, is economic. Quarantines and travel restrictions set in place to fight the spread of the disease are shutting down large sectors of the global economy, especially in tourism, hospitality, shipping and trucking – the list is long. While we aren’t dealing with ‘The Stand’s’ Captain Trips yet, we are facing a serious situation. And if you’re relying on stocks in your investments, you’re bound to be worried.
Insiders – the corporate officers who are responsible to shareholders – have been using recent low prices to snap up shares in their own companies. These are informative buys, in the jargon – stock buys from people in a position to know how a company will likely perform when the current dip turns around. Large buys by company officers are a frequently a sign of confidence.
The TipRanks Insider’s Hot Stocks tool opens a window onto recent trades – both buy and sell – by corporate insiders. It’s an invaluable look at how ‘those in the know’ are reacting to market conditions
Oneok, Inc. (OKE)
We’ll start in the energy industry, which has been particularly hard-hit. Oil prices have fallen from the $55 to $60 range down below $35 per barrel, on a combination of lowered demand, a supply glut, and a Russia-Saudi price war. The immediate losers are the drilling and midstream companies, who have seen profits drop along with the price per barrel. Oneok is one such midstream company. OKE focuses on natural gas, with processing plants, storage facilities, and pipelines in the Permian, Mid-Continent, and Rocky Mountain regions – some of North America’s richest gas production fields.
As for the insiders, both the CEO and the Chairman of the Board at OKE are stocking up on shares. Terry Spencer, the CEO, purchased over $997,000 worth of company stock this week, while John William Gibson, the Chairman, bought 12,700 shares for $497,000. Both buys are large enough to be considered informative, and they skew the insider sentiment on this stock into positive territory.
OKE maintains a generous dividend payment, which it raised this year to 93.5 cents per share quarterly. The annualized payment, $3.74, gives a sky-high yield of 13% at current share prices. This is more than 6x the average yield among S&P listed companies, and whopping 13 times the yield of US Treasury bonds. It’s a strong return, and a real incentive to investment.
Argus researcher Bill Selesky sees plenty of reason for optimism in OKE shares. He writes, “The company continues to restructure legacy contracts and is working to generate new business under a fee-based system. As a result, its earnings have become less vulnerable to changes in volume and pricing. ONEOK also pays a solid dividend … [which] is more than covered by cash flow.”
Selesky’s Buy rating on OKE is supported by an $82 price target, suggesting an impressive upside of 188%. (To watch Selesky’s track record, click here)
Tristan Richardson, of SunTrust Robinson, also take a bullish posture toward Oneok, with an $80 price target that implies an upside of 181%.
In his comments on the stock, Richardson states, “…the growth outlook offered by OKE we think stands out in midstream and energy broadly… we think over the near term OKE shares relatively outperform on an IG name with an execution track record in a infrastructure constrained environment, even in face of macro energy risks.” (To watch Richardson’s track record, click here)
Overall, Oneok gets a Moderate Buy rating from the analyst consensus, based 10 Buys, 3 Holds and single Sell ratings issued in the past 3 months. Shares are priced at $17.57, and the average price target, $72.25, indicates room for a 154% growth potential. (See Oneok stock analysis on TipRanks)
Aramark Holdings (ARMK)
Aramark is well-known in the food service, facility, and uniform business – an important niche providing necessary services to a wide range of clients. Aramark’s services can be found in the education, healthcare, leisure, and prison industries, and the Philadelphia-based company operates in 20 countries around the world, including Ireland, the UK, Germany, Spain, Philippines, South Korea, and Chile.
Aramark’s CEO and COO, John Zillmer and Bruno Marc both made large purchases of company stock this week. Marc picked up 23,400 shares, paying over $497,000, while Zillmer increased his holding by 40,000 shares in a $1 million purchase. The total informative purchases by company execs in the past three months is $1.63 million – a clear vote of confidence in ARMK.
The company uses its solid financial footing in part to keep up a reliable dividend. The yield is a modest 1.8%, with an annualized payment of 44 cents per share. Aramark has a 6-year history of gradual dividend increases, and the 17% payout ratio indicates that the company can easily afford to keep up the payments.
Credit Suisse analyst Kevin Mcveigh sees ARMK in a strong position for future growth. He writes, “Our Blue Sky scenario is predicated on ARMK seeing faster top line growth, toward the higher end of its LT targets, and seeing faster synergy capture, which would drive 2021E EBITDA ~10% above our current 2021E EBITDA. We assume that the multiple expands to ~12x to account for faster growth and margin expansion.”
Mcveigh gives ARMK a $57 price target, supporting his Buy rating and implying a 134% upside potential. (To watch Mcveigh’s track record, click here)
Covering the stock for Oppenheimer, Ian Zaffino sets a $50 price target, indicating a possible 105% upside, along with his Buy rating. He believes that ARMK has the resources to withstand COVID-19’s impact.
Zaffino writes in his comments on the stock, “[Company] strategy is to create a more customer centric and salesforce-driven model to improve retention and accelerate new business wins. Separately, while a prolonged Coronavirus outbreak would hit revenues, the company’s flexible cost model should help protect short-term margins.” (To watch Zaffino’s track record, click here)
The Moderate Buy analyst consensus rating on ARMK shares is based on 4 Buys and 2 Holds, along with a single Sell. The average price target of $47.50 suggests a robust upside potential of 101% from the current share price of $23.61. (See Aramark stock analysis on TipRanks)
Affiliated Managers Group (AMG)
This investment management company holds stakes in a variety of boutique assets, including hedge funds and private equity firms. AMG’s services include assistance in strategic matters such as distribution, marketing, product development, and general operations.
CEO Jay Horgen purchased $531,000 worth of AMG shares yesterday, giving the stock a strongly positive insider signal. Horgen now holds over $8.2 million worth of company stock.
Strong earnings allow AMG to keep up its regular quarterly dividend of 32 cents. At $1.28 annualized, the yield is 2.5%, somewhat better than average in the markets. The company has raised the dividend twice in the past three years, and with a payout ratio of just 7% investors need not worry about sustainability.
Barrington analyst Alexander Paris sees a clear path forward for AMG writing of the company, “As we approach a return to organic growth and management demonstrates it can close on additional accretive investments in new affiliates, like Garda, we believe the stock will move higher. Management said that, while the timing of individual new investments is inherently uncertain, it expects to generate incremental earnings from accretive investments in 2020.”
Paris’ Buy rating is accompanied by a 12-month price target of $100, suggesting an upside here of 85%. (To watch Paris’ track record, click here)
AMG has a cautiously optimistic Moderate Buy consensus rating from the Street. This breaks down into 2 “buy” and 3 “hold” ratings in the last three months. We can also see from TipRanks that the average analyst price target is $88.63 – 60% upside from the current share price. (See AMG stock analysis at TipRanks)