Are we moving towards a full market recovery? The waters are still murky, and thus, the trajectory of stocks remains somewhat unclear. Therefore, the pros on Wall Street suggest selecting an investing strategy that regardless of the broader market’s movements, will yield returns. One such approach involves following those on the inside.
These insiders are a company’s board members and corporate officers who are held accountable to shareholders. Given the nature of their roles within a company, they know the ins and outs of the business, and have access to information that could spur share price movements before the general public. To make it fair for everyday investors, corporate insiders have to disclose any purchases or sales. There could be several reasons to sell shares, but there’s usually only one reason insiders buy, so a purchase could be a signal to investors that gains are on the horizon.
Bearing this in mind, we used the Insiders’ Hot Stocks tool from TipRanks to pinpoint three stocks insiders have been snapping up recently. The platform also revealed that each ticker has received Buy ratings from Wall Street analysts. Let’s jump right in.
Boyd Gaming (BYD)
Owning and operating 29 gaming properties in ten states, Boyd Gaming is one of the largest casino entertainment companies in the U.S. While the bears might point out that 2020 hasn’t been kind to this name, the insider sentiment is swinging strongly positive.
On the first of this month, executive chairman William S. Boyd, pulled the trigger on 100,000 shares. As for the value of the purchase, it came in at $1,607,000.
BYD has scored fans within the analyst community as well. Writing for Deutsche Bank, analyst Luis Chinchilla tells clients “the current environment has provided investors the opportunity to own Boyd Gaming, a high-quality credit in our view, at attractive pricing based on our expectations.” He added, “From a fundamental perspective, we like this credit owing to (1) the company's ownership of an attractive portfolio of properties in the regional markets; and (2) sufficient liquidity to navigate the challenging environment.”
In a recent call with investors, management stated that all of its properties are currently closed and after factoring in CAPEX, interest expenses, rent and OPEX, the company is burning through about $60 million per month. Having said that, its liquidity of $741 million, not including the $90 million worth of cage cash, should be enough to support its operations for the next twelve months, in Chinchilla’s opinion.
Looking forward, Chinchilla said, “With regard to our expectations, we currently forecast total leverage to peak at ~13.7x in 2020. We anticipate that the company will pay down the revolver before year-end 2020. For 2021, we expect total leverage to decrease to ~6.3x.”
It should be unsurprising, then, that Chinchilla upgraded his rating to a Buy. Not to mention the $22 price target puts the upside potential at 28%.
What does the rest of the Street have to say? As it turns out, other analysts are generally on the same page. 9 Buys and 2 Holds add up to a Strong Buy consensus rating. Given the $24.60 average price target, shares could rise 48% in the next year. (See Boyd Gaming stock analysis on TipRanks)
Honeywell International (HON)
Leading the way for more than 100 years, Honeywell is one of the premier industrial companies, with it boasting four operational segments including aerospace, home and building technologies, performance materials and technologies, and safety and productivity solutions. Despite its recent rough going, HON insiders are betting on a turnaround.
On April 24, not one, not two, but ten different company Directors made informative buys in the amount of $57,615. Following the purchases, the Directors saw their holdings increase by 429 shares.
Credit Suisse analyst John Walsh appears to echo the Directors’ sentiment. He acknowledges that it could take a few years to see a muted recovery in the aerospace market, but that doesn’t mean investors should write HON off.
“...we see value in HON based on their history of operational execution and strong liquidity position. In our opinion, HON should be among the first industrial cos to restart share repo or deploy capital for M&A. HON also offers a way to participate in unexpected Aerospace upside, as their portfolio will face less parked aircraft risk without commercial engines,” Walsh explained.
Additionally, HON is preparing for the worst. To this end, management stated that it’s planning to reduce fixed costs by $1.1-$1.3 billion in 2020 by trimming discretionary spending, limiting hiring and reducing incentive payouts. It should be noted that 30-40% of these cuts will only be short-term.
Walsh added, “Compared to 2008 crisis, we think HON is better prepared to weather the downturn this time. HON’s balance sheet is less levered at 0.8x (net debt) versus 1.2X in Q4 2008. Honeywell’s pension asset allocation has resulted in overfunding despite recent market volatility. HON also refinanced €1 billion of debt and raised additional $6 billion through 2-year DD-TL. This leaves the company with over $20 billion of liquidity.”
Sure, some investors have expressed concern regarding the rate in which demand is recovering in China and sales declines in the next quarter, but Walsh argues that this should be partially offset by HON’s defense segment.
Taking all of this into consideration, Walsh stayed with the bulls. Along with his Outperform call, he bumped up the price target from $148 to $158, indicating 18% upside potential. (To watch Walsh’s track record, click here)
As for the rest of the Street, the bulls have it. HON’s Moderate Buy consensus rating breaks down into 9 Buys and 4 Holds received in the last three months. The $149.08 average price target suggests shares could surge 11.5% in the next year. (See Honeywell stock analysis on TipRanks)
Unity Bancorp, Inc. (UNTY)
Through its community-oriented commercial bank, Unity Bank, holding company Unity Bancorp is able to provide a diverse range of accounts as well as a complete portfolio of business products and online services. Shares have already gained 43% in the last month, but judging by the insider activity, even more growth could be in store.
Digging deeper into the insider activity, a total of three informative buys were made since April 22. The first of these purchases was made by Director Mark Brody, who spent $3,463 to acquire 295 shares. Making our way to the larger purchases, Robert Dallas and David Dallas, Directors and over 10% owners of UNTY, snapped up 20,000 shares, spending $305,550 in the process.
On the analyst front, Boenning & Scattergood’s Erik Zwick has also been singing UNTY’s praises. Part of the excitement surrounding this name is related to its most recent quarterly results. For the first quarter of 2020, EPS landed at $0.50, versus $0.52 in the prior-year quarter. While this figure fell slightly short of the consensus estimate, it exceeded Zwick’s $0.46 call.
In addition, its NIM expanded by 4 basis points quarter-over-quarter to 3.92% as the company’s liability sensitive balance sheet is ideally positioned to absorb recent Fed Funds rate cuts, according to Zwick. Core fee revenue also flew past the analyst’s estimate thanks to gains on the sale of mortgage loans.
It should be noted that non-accrual loans and net charge-offs could rise during the second half of the year with the fading of deferral periods and government stimulus impacts. However, Zwick thinks that “Unity is a conservative underwriter and is closely working with its borrowers, which should help limit the magnitude of losses.”
The analyst added, “The company operates a traditional, commercial-focused community bank model that we believe should be attractive to risk averse investors who prefer steady growth and a focus on efficiency. Combined with an attractive footprint, above-peer profitability, strong capital and reserves and the ability to grow tangible book value 11%-plus annually, we believe the risk/reward profile is favorable today with shares trading at a discount to peers on a P/TBV basis (0.84x vs. 0.90x).”
To this end, Zwick maintained his Outperform rating and $21 price target. Should this target be met, a twelve-month gain of 45% could be in the cards. (To watch Zwick’s track record, click here)
Looking at the consensus breakdown, it has been relatively quiet when it comes to other analyst activity. Only one other analyst has published a review recently, but it was also bullish, making the consensus rating a Moderate Buy. At $19, the average price target implies 41% upside potential. (See Unity Bancorp stock analysis on TipRanks)
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