Volatility is on us, with a vengeance. After rising, rising, rising most of the summer, markets made a sudden correction early this month. The losses were serious, but small in comparison to the earlier gains.
But the key was volatility. Even with the losses, the S&P is up 5% year-to-date, and the NASDAQ’s gain this year is a most impressive 24%. Clearly, there are solid buys here, for an investor with the savvy to find them. Finding the right stocks for uncertain times, however, is no mean feat.
Following the market’s insiders can be the right strategy. These are the corporate officers, responsible to their Boards and shareholders for bringing in profits – and privy to information that sometimes hasn’t filtered out to the public. So, when they start buying up shares in their own companies, that’s a sign that investors should heed.
The Insiders’ Hot Stocks tool, from TipRanks, brings these trades to your fingertips, making it easy to find which stocks corporate insiders are buying – and what strategies can be used to track them. We’ve used the tool to pull up three beaten-up stocks that insiders have been picking up.
Summit Materials (SUM)
First on our list is an unlikely candidate, a supplier to the construction industry. But as the economy reopens, and as unemployment is dropping, home sales are starting to speed up as well – along with new home builds. Summit Materials produces asphalt, cement, ready-mix concrete, and other aggregate building materials in high demand by the construction industry; these products are essential for building everything from houses to roads.
After seeing revenues drop in 1Q20 – to be expected, with the coronavirus crisis and associated economic shutdowns – Summit saw a sharp turnaround in Q2. Revenues surged as business started up again, rising to $631 million, exceeding not just the Q1 total, but the Q4 total as well. Earnings showed an equally dramatic gain, from a 48-cent loss per share to a 50 cent EPS profit.
In the wake of this turnaround, Anne Noonan, Summit’s President and CEO, put down $1.005 million to buy a bloc of 66,000 shares in the company. This was the first informative buy in almost a year, and it pushed the insider sentiment on this stock strongly positive.
While the financial were good, SUM shares remain down, having lost 35% since the turn of the year. Deutsche Bank analyst Seldon Clarke sees this as a chance to ‘buy the dip.’
"We are now several months into covid and SUM has yet to see any meaningful impact to its business, and the outlook for both resi and public highway spending continues to improve from the trough in April. Moreover, state budgets are in a considerably better position with Summit’stop four states – which account for ~60% of net revenue – experiencing little to no impact on state highway spending or letting activity. With underlying trends expected to continue improving into year-end alongside further deleveraging, we expect shares of SUM to continue to move higher over the next several months," Clarke opined.
Clarke gives SUM a $24 price target, suggesting it has a 53% upside potential, to back his Buy rating. (To watch Clarke’s track record, click here.)
Overall, Summit has a Strong Buy analyst consensus rating, based on 9 Buys against a single Hold. The shares are selling for $15.72 and have an average price target of $22.56, giving the stock a 43.5% potential upside for the year ahead. (See SUM stock analysis on TipRanks)
Affiliated Managers Group (AMG)
Next up is an investment management company. Affiliated Managers Group holds a variety of boutique assets, with strong stakes in hedge funds and private equity. The company provides customers with strategic assistance, including marketing, product development, and funds distribution.
Like Summit above, AMG has still not recovered from the February market drop. Shares have been trading flat since mid-June, and the stock remains down 20% year-to-date. Revenues and earnings have also slipped, although, in Q2, the rate at which EPS is dropping slowed down.
The insider sentiment on AMG is positive, after several major purchases so far in September. The two most significant were each over $300,000. Jay Horgen, President and CEO, spent $339K on 5,000 shares, while Board member Jeffery Ruben spent $350K a few days later, also for 5,000 shares.
Christopher Shutler, 4-star analyst with William Blair, sees plenty of reason for the insider buying. He writes of this stock, “[Our] assessment that the overall quality of AMG’s affiliate base is solid, the defensive nature of the primarily revenue-share business model, and potential for new affiliate investments to gradually reshape the company’s growth profile."
Shutler chose not to set a price target, but he rates the stock Outperform (i.e. Buy). (To watch Shutler’s track record, click here)
Despite the positive insider sentiment, and Shutler’s optimism, Wall Street is generally cautious here. The stock has a Hold rating from the analyst consensus, based on 2 Buys, 3 Holds, and 1 Sell. Yet, the stock’s average price target of $75.80 suggests a 12% upside from the current trading price of $67.51. (See AMG stock analysis on TipRanks)
Chatham Lodging (CLDT)
The last stock on our list, Chatham, is a real estate investment trust focused on the hospitality sector. The company owns a portfolio of 40 high-end hotels. Unlike many REITs, Chatham does not handle property management directly, preferring to remain the owner while allowing third parties to handle the day-to-day work of running the hotels.
The corona crisis has not been kind to Chatham, as the social lockdown policies forced a drastic cutback in travel, while the economic shutdowns cut deeply into people’s leisure budgets. The company saw both revenue and earnings fall in 1H20, with the top line dropping to just $20 million in Q2 while the EPS turned negative in the quarter.
The share performance in recent months reflects the hard times. CLDT is down by 59% year-to-date, and simply failed to regain traction during the recovery in stocks. But it would seem that one insider is willing to buy the shares on the cheap.
In recent days, Board Chairman and company CEO Jeffery Fisher made two purchases, totaling $639K. For that outlay, Fisher picked up 85,000 shares. His confidence in the stock pushed the insider sentiment positive overall.
B. Riley FBR analyst Bryan Maher sees reason for confidence in the company’s strong balance sheet.
"[CLDT] reported liquidity of $114.0M (including $37.0M in cash and $77.0M available on its credit facility), which, assuming the cash burn rate of $2.8M in June continues, would provide the REIT with nearly 41 months of cushion to wait out a recovery. Not only do we believe that it will take a fraction of that time, but Chatham's cash burn has been declining (materially) monthly since April, suggesting the REIT should be fine from a liquidity standpoint without raising additional capital,” Maher opined.
Maher backs his stance with a $9 price target and a Buy rating. His target implies an 18% upside potential for this stock. (To watch Maher’s track record, click here)
All in all, Chatham Lodgings has 1 Buy rating and 3 Holds, making the analyst consensus rating here a Moderate Buy. The stock is priced at $7.61 and the $7.88 average price target suggests a modest 3.5% growth. (See CLDT stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.