For the retail investor, insider trading is one of the best indicators of a stock’s potential future performance. The insiders, of course, are much friendlier than the connotations of the name. They are corporate officers, C-suite residents, or members of the board of directors. Their holdings give them a close-up view of a company’s inner workings, and that view guides them when they trade their own company’s stock.
The insiders’ knowledge of the company gives them an advantage in their trading, giving them an edge over other traders in the same stock. To maintain a level playing field, regulators require insiders to publish their trades so that the trading public can monitor these trades. The important thing to remember is that insiders typically only buy their own stock if they are sure the price will rise.
We used the Insiders’ Hot Stocks tool to learn about a few stocks where some insiders have spent at least $1 million. The insiders are cautious in their trading activities and their purchases of such substantial value demonstrate a clear willingness to take significant risks. These are the trades that retail investors should scrutinize.
Now let’s take a closer look at these trades and what the analysts have to say. This will help us understand why it might be a smart move to follow in their footsteps.
Oneok, Inc. (OKAY)
Let’s start with Oneok, a leading midstream company specializing in natural gas. Oneok owns one of the top rated natural gas liquid systems in the US and its network connects the Permian, Mid-Continent and Rocky Mountain regions to key market centers. Oneok’s network includes a variety of resources for the collection, processing, storage and transportation of natural gas, making the company a leading provider of midstream services.
Last May, Oneok took a major step to expand its network, announcing its agreement to acquire Magellan Midstream Partners. The move will make Magellan a wholly owned subsidiary of Oneok and give Oneok a presence on the Gulf Coast. The combined asset network will span more than 25,000 miles of pipeline. The acquisition transaction is valued at $18.8 billion in cash and stock and is expected to close in 3Q23.
On the way to closing that transaction, we can review Oneok’s most recent quarterly report for a snapshot of how the company is doing. Revenue for 1Q23 was $4.52 billion, down nearly 17% year-over-year and missing guidance by $827 million. However, earnings exceeded forecast; the EPS figure of $2.34 was 5 cents better than expected.
Better-than-expected earnings contributed to a solid dividend, which Oneok paid in April at 95.5 cents per common share and paid in May. At the current rate, the annual dividend payment is $3.82 per share, yielding a yield of 6.3%, adding significantly to the stock’s yield value.
In terms of insider activity, we see that the company’s president and CEO, Pierce Norton, recently bought 24,607 shares of OKE, spending $1.5 million on it. It was by far the largest transaction made recently by a Oneok insider.
All this has caught the attention of Stifel analyst Selman Akyol, who is impressed with Oneok’s acquisition activity and its ability to mimic larger midstream companies.
“We view the acquisition of Magellan as a way to provide ONEOK with greater scale and diversity of assets while maintaining the concentric footprint of Gulf Coast and Mid-Con. This will clearly bring OKE more in line with Enterprise Products or Energy Transfer in terms of diversity in the carbon chain. Equally important, it provides OKE with immediate synergies totaling $200 million and potentially a runaway to reap total synergies in excess of $400 million in the years to come. OKE had a desire to be able to export NGLs and we believe OKE, through additional assets or possibly asset repurposing, can get much closer to achieving that goal given Magellan’s access to the water,” Akyol opined.
These comments support the analyst’s Buy rating, while his $76 price target suggests OKE is up ~25% in the coming months. (Click here to view Akyol’s track record)
Overall, OKE has an average buy consensus score, based on 12 recent analyst ratings with a breakdown of 7 buy, 4 hold, and 1 sell. The stock is currently trading at $60.94 and its $70.55 average price target implies room for ~16% growth going forward. (To see Oneok Stock Forecast)
The Children’s Place (PLCE)
Now we shift gears and move from the energy industry to the realm of children’s stores, exploring the prominent player, Children’s Place.
Notably, Children’s Place holds the position of the largest retailer of children’s clothing in the North American market. The company designs its own clothing lines for children from birth through toddlerhood to school age and outsources the production of these designs. In addition, the company manages both retail and wholesale marketing and sales.
Children’s Place sells its merchandise under a variety of brand names, including the well-known namesake Children’s Place label, Baby Place, and Gymboree, among others. At the end of the company’s first quarter — the end of last April — Children’s Place operated 599 stores in the US, including Puerto Rico and Canada. On the international side, the company had five international franchise partners, who owned 212 distribution points in 15 countries.
The economic turmoil of recent years has been hard on Children’s Place, and the company’s shares are down 28% since the start of the year. However, recent weeks have been better and PLCE has joined the overall bullish trend – the share is up 81% from its June 1 low.
Looking at the financial results, Children’s Place’s latest report, for the first quarter of fiscal 2023, ending April 29, showed revenue of $321.64 million. This was an 11% year-over-year decline and missed estimates by $16.82 million. In the end, earnings also missed the forecast, with non-GAAP EPS of -$2.00 falling 22 cents below expectations. The EPS figure was a poor comparison to the $1.05 EPS gain reported in 1Q22.
Despite the financial misses, Children’s Place CEO Jane Elfers bought 43,000 shares of the stock early this month. This was a major insider buy, for which Elfers had committed $1.019 million. Her stake in the company now exceeds $8.8 million.
She’s not the only bull here either. Jeff Lick, who covers PLCE for B. Riley, sees Children’s Place as an undervalued growth opportunity and recommends that investors buy in now. In his words: “We cont
inue to appreciate the fundamental, transformational story of PLCE. From an equity positioning perspective, we’d be remiss if we didn’t emphasize the idea that it seems to us that PLCE now has four consecutive quarters of low expectations, potentially explosive upside catalysts and seemingly easy comparisons.
“It is not our intention to ignore the effects that the current and prolonged economic headwinds can and have had on PLCE’s financial results. In our view, the company-specific, transformative elements of the PLCE story, together with proven cash flow generation and low valuation based on our 2024 estimates, simply represent too great a return potential along with a reasonable level of downside protection to succeed up,’ added the analyst.
In addition to his buy rating on the stock, Lick gives PLCE a price target of $43 implying a one-year gain of 64%. (Click here to view Lick’s track record)
Overall, Children’s Place stock receives a moderate buy rating from the analyst consensus, based on 3 recent ratings, including 1 buy to 2 hold. The stock is selling for $26.22 and its average target price of $30.67 suggests it will be up ~17% over the next 12 months. (To see PLCE inventory forecast)
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disclaimer: The opinions expressed in this article are solely those of the named analysts. The content is for informational purposes only. It is very important to do your own analysis before making an investment.