The stock market is a gold mine of data, but the sheer volume of it can be intimidating for the average retail investor. What’s needed is some clear signal, something that can cut right through the noise generated by over 9,500 publicly traded companies, to show just which stocks are likely to head upward.
Corporate insiders are ideally positioned to give just that signal. They are the company officers – Board members, CEOs, CFOs, COOs, and the like – whose positions give them access to the inside workings of their companies and make them responsible for bringing in profits. Their reasons for trading their companies’ shares are myriad, but one thing is certain: they don’t trade them lightly. And when their purchases start getting into the upper six figures, or even more, investors should take notice.
We’ve gotten that process started. Using the Insiders’ Hot Stocks data sorting tool at TipRanks, we’ve pulled up two stocks that have shown recent ‘informative buys’ from informed insiders. It also doesn’t hurt that each stock is admired by the analyst community, enough so to earn a “Strong Buy” consensus rating. Let’s take a closer look.
Energy Transfer (ET)
We’ll start with Energy Transfer, a midstream company in the oil and natural gas industry. Energy Transfer is one of the largest American midstream firms, boasting an asset portfolio that spreads across 41 states and Canada, and the Dallas-based company has international offices in both Calgary and Beijing. The company’s assets include pipelines, terminals, and processing facilities, for crude oil, natural gas, natural gas liquids, and liquified natural gas (LNG).
Rising fuel prices have helped ET’s bottom line. In the last reported quarter, 4Q21, the company showed top line revenue of $18.66 billion along with an EPS profit of 29 cents. Year-over-year, those numbers translated to gains of 86% and 52%, respectively.
For investors, a key metric is the company’s distributable cash flow, as it directly funds the dividend. For the fourth quarter, this metric grew to $1.60 billion from $1.36 billion in the prior year. Management felt confident enough in the company’s financial and cash position to bump up the dividend by 15%, to 17.5 cents per common share. The payment was made in February; at an annualized rate of 70 cents, it gives a strong yield of 6.3%.
These are not the only positive figures for the company. Turning to the insider trades, we find that Board member Michael Grimm recently made a head-turning ‘informative buy.’ He purchased a total of 504,600 shares, and he shelled out $5.657 million to pick them up. The buy brings his total holding in the company to $7.821 million.
5-star analyst Michael Blum, from Wells Fargo, lays out a solid bullish case. Looking at the company’s ability to return profits, he writes, “While ET is prioritizing distribution growth and further leverage reduction over buybacks in the near term, our long-term positive thesis remains intact. ET generates one of the highest FCF profiles in the midstream space (16% 2022E FCF yield). We believe excess FCF will ultimately be returned to unit holders via buybacks as leverage decreases.”
These comments support Blum’s Overweight (i.e. Buy) rating on the shares, and his $15 price target indicates room for 36% upside in the next 12 months. (To watch Blum’s track record, click here)
Getting in line with the insider trade and the Wells Fargo analyst, Wall Street has set 9 positive reviews here in recent months, giving ET its Strong Buy consensus rating. The shares trade for $11.05 and their $14 average target suggests a 27% one-year upside. (See ET stock forecast on TipRanks)
Dave & Buster’s Entertainment (PLAY)
Shifting gears, we’ll move over to leisure and entertainment, where Dave & Buster’s has long been a popular name and venue, known as both a full-service restaurant and bar and a high-end video arcade, with billiards and bowling on tap too. The company’s business model, catering to grown-ups with a taste for games and fun, has been a proven success.
A few numbers will tell the tale of that success. The company posted heavy losses in the corona pandemic year of 2020 – revenues fell to just $436.5 million – but came roaring back when the economy reopened in 2021. The top line for last year came to $1.3 billion, nearly triple the 2020 number, and almost matching the $1.35 billion recorded in the pre-pandemic year of 2019. EPS for 2021 came to $2.21 per diluted share, still down from the $2.94 reported in 2019, but a dramatic turnaround from the $4.75 EPS loss recorded in 2020.
In a measure of D&B’s confidence, the company earlier this month announced that it will be acquiring the family entertainment chain Main Event. The transaction will cost D&B $835 million in an all-cash deal, and is expected to close by the end of this year. Main Event will bring 50 locations to the Dave & Buster’s network. Once the transaction is closed, Main Event’s CEO, Chris Morris, will take over as CEO of D&B.
And this brings us to the recent insider buy. Dave & Buster’s Board member Kevin Sheehan is currently serving as interim CEO – and he spent just over $405K to pick up 10,000 shares of PLAY. Sheehan now holds $6.62 million worth of stock in the company.
This company’s recent large acquisition has Wall Street’s analysts thinking about PLAY’s forward growth. Andy Barish, of Jefferies, likes what he sees in that direction, and writes, “We view PLAY as among best positioned to drive upside and accel growth the next few years (we model 8 new units in '22, +1 fr prior est, and think +10-14 units in '23/24 is possible but model just 10 in '23 for now). NT, sales recovering well, and LT we think higher services/experiences spend category-wide will benefit the Co given capacity reduction from competition and a stronger PLAY too.”
In line with these comments, Barish rates the stock as a Buy, with a $60 price target suggesting a one-year upside potential of 40%. (To watch Barish’s track record, click here)
Once again, we’re looking at a Strong Buy-rated stock. The consensus view here is based on 8 recent recommendations, including 6 to Buy and 2 Holds. The shares have an average price target of $56.71, which suggests an upside of 33% from the trading price of $42.73. (See PLAY stock forecast at TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.