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Every investor knows that the path toward profits lies in buying low and selling high. That’s a basic precept of any economic trading system. The trick, however, is recognizing when the stock is low enough to buy in. The prime moment to buy is when the stock hits bottom; that will maximize returns when the share price starts to rise again.
There are a multitude of possible clues investors can use to find the price bottom; today, we’ll be looking at insider buying trends.
Insiders – the corporate officers, board members, and others ‘in the know’ – don’t just manage the companies, they know the details. Legally, they are not supposed to trade that knowledge, or to blatantly trade on it, and disclosure rules by government regulators help to keep the insiders honest. Their honest stock transactions, however, can be highly informative. These are the people with the deepest knowledge of particular stocks. So, when they buy or sell, especially in bulk, take note.
In this case, we’ve used the TipRanks Insiders’ Hot Stocks tool to find two stocks whose price has dropped recently – and that drop has coincided with some ‘informative buy’ insider trades. Let's take a closer look.
Intercept Pharma (ICPT)
We’ll start in the pharmaceutical sector, with Intercept, a specialist in the treatment of chronic liver conditions. Intercept Pharma is working to develop treatment for several chronic and serious diseases of the liver, including primary biliary cholangitis (PBC) and nonalcoholic steatohepatitis (NASH). The company’s chief compound, obeticholic acid (OCA), was developed as an analog of the CDCA bile acid, and can play a role in treating liver conditions through the FXR receptor pathway. OCA, also called Ocaliva, has received approval by the US FDA and in Europe for use to treat PBC.
Intercept has, in recent months, seen important changes. First, the company has experienced churn in the upper management. Effective this past January 1, the company’s COO Jerome Durso stepped up to the CEO post, and earlier this month CFO Sandip Kapadia announced that he will step down on March 26. His position will be filled on an acting basis by Rocco Venezia as an interim measure.
On the business side, the company reported 4Q20 results at the end of February. The release showed significant gains in worldwide sales of OCA. Q4 net sales reached $83.3 million, up 18% year-over-year, and the full year sales grew 25% yoy to reach $312.7 million. The company gave guidance toward $325 million to $355 million for 2021 net sales of OCA. On a negative note, the EPS net loss in Q4 was worse than expected, coming in at $1.58 against a forecast loss of $1.47. And, while the OCA sales were up from last year, quarterly revenue was also below expectations.
After the earnings release, the stock fell 19%. That loss came on top of a difficult 9 months for Intercept. The stock is down ~74% over that period. The run of losses started last June, when the FDA rejected an application for approval of OCA to treat NASH-related liver fibrosis.
OCA is currently undergoing an extensive Phase 3 trial for this condition, to back new applications for approval by the end of this year. There are no current medications for the treatment of NASH and its complications, and Intercept anticipates the market could reach $5 billion in annual sales.
Turning to the insider trading, we see that Srinivas Akkaraju, of the Board of Directors, purchased 237,000 shares of ICPT in three tranches between March 10 and March 12. The total cost came to $5.02 million, and Akkarju’s stake in the company is now worth $13.95 million.
Looking to the future, Wedbush's Liana Moussatos remains cautiously optimistic. The 5-star analyst rates ICPT an Outperform (i.e. Buy), and her $88 price target implies an impressive upside of 331% over the next 12 months. (To watch Moussatos’ track record, click here)
“We are making multiple adjustments to our model. Management plans to resubmit the OCA/NASH NDA to the FDA by YE:21. Consequently, we pushed our U.S. launch date for OCA/NASH from 7/15/2022 to 2/15/2023 to allow enough time to fulfill FDA requirements and commercial preparations. We decreased our estimated treatable PBC population from about 34K to 32K due to the impact of potential OCA/PBC label changes for patients reaching the most advanced stages of PBC,” Moussatos noted.
Moussatos is the bullish outlier here; Wall Street’s analyst corps is clearly divided on this stock, as shown by the breakdown of the 14 recent reviews. These include 6 Buys, 7 Holds, and 1 Sell, making the consensus rating a Moderate Buy. Shares are priced at $20.40 and the average price target of $43.33 suggests an upside of 112% from that level. (See ICPT stock analysis on TipRanks)
Kinsale Capital Group (KNSL)
Shifting gears, we’ll move over to the insurance industry, where Kinsale Capital is a provider of excess and surplus lines insurance products. These are policies which customers take out to protect against ‘excess’ risk, or risks that are too high for their regular insurance company. Kinsale focuses exclusively on these high-risk insurance products, and keeps control of both its claims and underwriting processes.
Kinsale has seen significant growth in both revenues and earnings over the past year. At the top line, revenues in 4Q20 were up 51% to $139.33 million, and EPS, at $1.65 per share based on $38.2 million in net income, was up 109% from the prior year. For the full year, Kinsale’s revenues reached $459.88 million, a gain of 45% year-over-year. Full year EPS rose from $2.86 in 2019 to $3.87 in 2020, a yoy gain of 35%.
The gains in revenues and income were driven by increases in all of the company’s main business segments. For both the quarter and the full year, Kinsale saw significant increases in gross written premiums, net investment income, underwriting income, and operating return on equity. The company finished 2020 with $1.3 billion in cash and invested assets, up 44% from December 2019.
Despite the sound results reported, KNSL shares are down over the past three months. The shares peaked in mid-December, and have lost 35% since then.
The drop in share price has not discouraged Steven Bensinger, from the company’s Board of Directors, from increasing his holding. On March 10, Bensinger bought two tranches of stock totaling 3,500 shares, paying $607,000. This brings his full holding in the company to more than 30,000 shares, valued at over $5.3 million.
Wall Street likes this insurance company, and Casey Alexander, covering the company for Compass Point, lays out a solid bull case.
“We continue to believe that the basic fundamental picture remains positive for KNSL. E&S premiums growth continues strong (46% YoY) and underwriting is strongly profitable, leading to an industry-leading combined ratio... KNSL also claims a technology-enabled expense advantage over peers that should lead to additional reserve redundancy. KNSL is making some inroads to the insuretech space, although moving cautiously while this new paradigm develops,” Alexander opined.
Alexander rates the stock a Buy, and puts a $225 price target that indicates room for 39% upside in the year ahead. (To watch Alexander’s track record, click here)
Solid results in a traditional finance sector like insurance will always get a thumbs up on Wall Street, so it is not surprising to see that the Strong Buy consensus rating here is unanimous, based on 3 recent reviews. The stock has an average price target of $235, for a 45% upside potential from the current share price of $161.94. (See KNSL 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.