Large Insider Buying At Year End
A private equity firm continues to make strategic insider transactions at a marijuana company with a fortress balance sheet
Happy early holiday’s to everyone. This will be a shorter week for me so only expect a few posts. I’ll stay connected in the Telegram channel for all subscribers so if there is any immediate question on any stock just shoot me a DM in there.
This week I plan on publishing a writeup on a new company I have not talked about before. The company has recently sold off two segments and remains in a strategic review to sell the final segment. The stock is pretty illiquid and is in nanocap territory, so the informational edge for retail investors is there if you can do the work — 95% of institutional investors will not be buying this stock given the sheer size. There is a ton of cash on the balance sheet and if this remaining segment gets sold I think there is meaningful upside with capital being returned via a large special dividend. Downside is minimal if the segment is not sold. Be on a lookout for the writeup early this week. I love special situations like this.
Last week I announced that every Monday I plan to write on actionable stock ideas that everyone can take advantage of for the week to come. Going forward, every Monday I will publish a list of all large insider trading transactions that occurred throughout the past seven days. Then throughout the week we can discuss and research stocks on this list that standout as potential investment ideas. Remember, when insiders buy their own stock, it means they think their company is undervalued. Buying stocks at 52 week lows alongside large insider transactions is a recipe for success in public markets.
Starting in 2023, the list of weekly actionable ideas will be expanded. I’m planning on publishing weekly stock lists that will include announced corporate carve-outs, spin-offs, M&A transactions, 52-week low lists, restructurings, special dividends, mutual bank conversions, etc. The goal of Alpha Letter is to find actionable stock ideas that no one else is talking about or looking at. These free lists will be a starting point into deeper dives on companies and how they generate free cash flow. If there is limited downside, with a strong margin of safety, the upside will take care of itself.
Let’s now dig into the insider transactions this past week. But first, a word from today’s sponsor…
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Insider Transactions for week of 12/12/2022-12/18/2022
The largest insider transaction came from Jason Adler, a director at Cronos Group. Mr. Adler purchased 291,400 shares with an average purchase price of $2.87 per share. Total value of the purchase was $837,623 and done in multiple transactions. Mr. Adler purchased these shares through Gotham Green Fund III, LP, a private equity firm investing exclusively in the global cannabis industry. Cronos Group has crashed from $21 per share in 2019 to a share price of only $2.85 today. The market cap is around $1 billion and there is $888 million of cash and short-term investments on the balance sheet. Gross margins has collapsed from lower marijuana pricing and the enterprise is currently not profitable. But with the multiyear low, large insider buy and well capitalized balance sheet, this name could be promising to dig into.
The second largest insider transaction came from Jeffrey Keenan, a director at Mativ Holdings. Mr. Keenan has purchased shares of Mativ Holdings throughout the past few weeks totaling up to 24,474 shares purchased at an average price of $20.66 per share or a total of $505,706 invested. Mativ Holdings looks pretty interesting at first glance. The stock is trading at a multi-year low with a P/E ratio of 6.38x and a dividend yield of 8.13%. The business is operated under an Advanced Technical Materials segment — 63% of revenues focused on resin-based products in the healthcare, transportation and industrial markets. The second division is the Fiber-Based Solutions — focused on papers for the tobacco industry. The market cap is $1 billion and enterprise value is $2.83 billion, resulting in a company with a significant amount of leverage. The company recently did some acquisitions with forecasts of $450 million of incremental EBITDA and margin expansion, so trailing EBITDA shouldn’t be the guide here. The company also owns a significant amount of buildings and land with gross PP&E of $1 billion. This name might be worth spending some time on.
The third largest insider transaction came from Steve Klohn, the SVP CIO, at Dave & Buster’s Entertainment. Mr. Klohn purchased 14,287 shares at $35.18 for a total investment of $502,684. This transaction was followed by other insider transactions at Dave & Buster’s including the CFO who invested $141,174 and the SVP CMO who bought $103,470. Insider transactions at Dave & Buster’s totaled to $750k, making Dave & Buster’s the largest insider traded stock of the week. The stock has been pretty volatile over the past year, but only remains down 14% ytd. There is quite a lot of debt and they recently closed on a $835 million acquisition of food-and-games chain Main Event. I’m probably going to sit this one out as large acquisitions are always tough to integrate and if there is any hiccup realizing forecasted synergies investors will sell the equity off. But seeing the insiders put their money where they mouth is, is an encouraging sign.
Other notable insider transactions:
A director bought $200,978 worth of $CRK. This name is up 74% over the past year and focused on oil and natural gas production. Apparently the director thinks continued cash flows will be generated in 2023.
Director Gary Evans of UAMY purchased 368,836 shares with an average purchase price of $0.40 for a total investment of $149k. The business model looks pretty interesting here and there is $20 million of cash and limited debt. The market cap is only $51 million but there looks like there could be some hair on this one. A few short seller activist investors have published reports on the name in the past and one author said there was a coordinated pump and dump with insiders in the past.
Here is a pretty interesting name with a stock price of only $0.06 per share. The CEO Marc Johnson purchased 159,500 shares of ADM Endeavors $ADMQ in multiple transactions at $0.06 starting December 9th for $13,280. The market cap is only around $9 million and there is $706k cash on the balance sheet and $200k in debt structured as notes payable and convertibles. The company is actually profitable with $562k of operating income in the first nine months of 2022. It looks like the company owns some land and buildings, including a rental property. I’m not really sure what the model is here, but after quarter-end they took on $4.6 million of debt to build 18-acre real properties in Fort Worth, Texas, secured by the CEO’s personal assets. This might be an interesting name to dig into.
Charlie’s Holdings $CHUC is another interesting one. A director there purchased 44,600 shares at $0.13 per share. The market cap is around $28 million with $500k in net debt. Revenues are rapidly growing, but there isn’t any free cash flow yet. The company sells nicotine-based vapor products, so there is some regulatory risk to be aware of.
Those are the names that stood out to me. Have a good rest of the week and Merry Christmas to anyone who celebrates. Be on the lookout for my initiation report on a special situation I am writing up this week. If you want access to more deep dives on actionable stock ideas subscribe to Alpha Letter Pro for only $20 per month. Want a free research report? Reply to this email before Tuesday and it’s yours.
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