HPK - Strong Mid-Cap Insider Buys: Q1 2023

2023-04-13 15:39:47 ET

Summary

• Today, we provide you the first quarter update in our recurring series based on firms that have enjoyed unusual insider interest during the first quarter of the year.
• We stand behind our belief that insiders supply the market with high-quality investment information each time they decide to trade their own company's shares on the open market.
• In today's article, we are covering insider purchases from companies including Cullen/Frost Bankers, Southwest Gas, Vistra Corp, Capri Holdings, and Valley National Bancorp, among others.
• Similarly to the large-cap coverage from last week, energy companies and banks have dominated insider purchasing activity for the first quarter in the mid-cap segment as well.
• This is our quick list of research-worthy mid-cap companies that, in our view, enjoyed a period of unusual and atypical interest from corporate insiders.

What were some strong insider buys in Q1?

We analyzed thousands of S-4 filings to find companies that have experienced periods of unusually concentrated purchasing activity by their corporate insiders. We have attempted to emphasize companies that enjoyed buying across the board from multiple insiders, in quantities that were not previously recorded, often after a period of a selloff.

In today's article, we will center the focus of our analysis exclusively on mid-cap stocks, but the series will be followed up with a first-quarter installment covering small-caps with a strong insider buying record. For this article, we defined mid-cap companies as publicly listed companies with a market capitalization of between $2 and $10 billion. Our original article with the main thesis can be read here , while the first-quarter article covering large-cap companies can be accessed through this link .

Below is our list of research-worthy mid-caps that, in our view, enjoyed a period of unusual and atypical interest from corporate insiders during the first quarter of the year and are worthy of a further dive:

Cullen/Frost Bankers Inc. (CFR)

• Active Corporate Insiders: 5

• One-Year Performance: -25.5%

• Total Bought Back: $2,003,793

• Average Price: $107.53

Cullen/Frost Bankers is a Texas-based financial holding company that is best known for its Frost Bank banking subsidiary. This year's banking crisis appears to have been temporarily contained by regulators, but investor confidence in bank stocks still has a long way to go. CFR is one of the stocks that felt the lack of consensus, having dropped 25.5% on a one-year basis, significantly falling behind the S&P 500 (SPY). Just last week, Jamie Dimon, one of the most influential bank CEOs in history, best known for spearheading JPMorgan Chase (JPM) through the 2008 financial crisis, threw in his two cents as far as the discussion went. The repercussions of the banking crisis, according to him, are going to be felt for years to come. Yet some of the most active insiders of the first quarter come straight from the banking and insurance sectors. Such is the case with Cullen/Frost, with the CEO Phillip Green, and EVPs Candace Wolfshohl, and Carol Jean Severyn, among others, buying more than $2 million worth of CFR stock at an average estimated price of $107.53 per share. The first major insider buy since the 2020 crash intends to signal some much-needed confidence to the market after insiders dumped millions worth of their stock into the market for years. All things considered, it would be difficult to define CFR as a cheap bank stock, given that it is currently selling for a P/E of 11.89x and a P/BV of 2.52x. Both Seeking Alpha Authors and Wall Street Analysts rate the bank as a "Hold" on average, signaling the steep price as one of the major downsides of an otherwise well-run bank. Shares of Cullen/Frost Bankers can currently be purchased for $104.79.

Southwest Gas Holdings (SWX)

• Active Corporate Insiders: 1

• One-Year Performance: -28.0%

• Total Bought Back: $234,727,396

• Average Price: $60.11

The next company on the list is interesting as it has only one active insider for the first quarter, but to refer to this as a major insider purchase would be somewhat of an understatement. Carl Icahn, who has been a longtime respected investor, rose to notoriety beyond the worlds of business and finance when the legendary investor decided to enter into an epic five-year-long feud with the seasoned Bill Ackman, over the future of Herbalife ( HLF ). The renowned activist investor disclosed yet another increase in his stake in the Nevada-based gas utility company. Southwest Gas provides natural gas service to over 2 million residential, commercial, and industrial clients in California, Arizona, and Nevada. This time around, he bought more than $230 million worth of SWX stock and increased his ownership stake in Southwest Gas to close to 15% of the company. SWX is currently trading at an EV/EBITDA of 10.89x, an NTM P/E of 18.44x, and a P/FCF of 24.40x. The company also pays a dividend of 4.10%, given today's stock price. Seeking Alpha Authors are not impressed with the utility firm, rating it a "Hold" with an average score of 3.2/5.00. Wall Street Analysts, on the other hand, have been much more enthusiastic about its future potential, having assigned SWX a "Buy" rating with an average score of 3.66/5.00. SWX is currently selling for $59.37 per share.

Capri Holdings Limited (CPRI)

• Active Corporate Insiders: 2

• One-Year Performance: -13.9%

• Total Bought Back: $10,177,479

• Average Price: $41.40

CPRI is known as a global fashion and luxury group, owning and operating founder brands such as Versace, Jimmy Choo, and Michael Kors. The 40-year-old company was initially known as Michael Kors Holdings but was forced to rebrand after it started building a broader brand portfolio by acquiring its own luxury brands. Capri Holdings offers anything from handbags, eyewear, leather goods, footwear, and accessories, to watches, perfumes, and other products. It started the year unimpressively, losing almost a quarter of its market value since January. This is exactly the point where the insiders started purchasing shares. The recent weakness in price opened the way for a very compelling price, with the luxury brand operator selling for an EV/EBITDA of 7.88x, a P/E of 7.02x, and a P/FCF of 8.56x. The company is held in high regard by both Seeking Alpha Authors and Wall Street Analysts. Both groups of analysts assign the company a "Buy" rating with an average score of 4.20/5.00 and 3.85/5.00, respectively. In the first quarter of the year, shares of the London-based company were bought by the CEO and Chairman John D. Idol, as well as the CFO Edward Thomas Jr. After years of selling the company stock as it traded in the $50-$70 range, they bought back nearly $10.2 million's worth of CPRI stock at an average estimated price of $41.40. Capri Holdings is currently selling for $43.65 per share.

Valley National Bancorp (VLY)

• Active Corporate Insiders: 10

• One-Year Performance: -31.8%

• Total Bought Back: $2,646,487

• Average Price: $10.34

VLY has been one of the banks most impacted by the banking crisis, having lost nearly 25% of its market value on a YTD basis. Valley National Bancorp is a holding company for a New Jersey-based regional bank that does business as Valley Bank and has close to $60 billion in assets. The bank is currently being valued by the market at a very competitive-looking P/E of 6.51x and trading below book value at a P/BV of 0.70x. Both Seeking Alpha Authors and Wall Street Analysts have faith that the bank will find its way to better days. They have both rated the company as a "Buy", with an average score of 3.50/5.00 and 4.18/5.00, respectively. The first quarter saw the CEO Ira Robbins alongside what seems to be a dozen other directors buy $2.6 million worth of VLY shares at an estimated average price of $10.34. Shares of the bank can currently be bought at an even lower price of $8.51. It will be interesting to monitor the next quarter's insider activity in light of the latest price movement.

Vistra Corp. (VST)

• Active Corporate Insiders: 2

• One-Year Performance: 3.7%

• Total Bought Back: $1,343,500

• Average Price: $24.74

VST is a Texas-based power utility company specializing in the production and distribution of electricity that is currently serving more than 4.3 million residential, commercial, and industrial customers across 20 different U.S. states and the District of Columbia. With a rich history and heritage that stretches all the way back to 1882, VST operates a portfolio of diverse energy-generating assets but has been increasingly leading towards renewable energy projects in recent years. The company is well-known for its willingness to return capital to its shareholders, notably by buying back a fifth of its outstanding shares in less than two years and aiming to distribute $0.3 billion in dividends yearly to its investors. Considering everything above, the firm is looking extraordinarily cheap as it trades at an EV/EBITDA of 6.78x, a P/E of 6.54x, and a P/FCF of 4.42x. Its current dividend yield is 3.20%. VST is a very respected and well-thought-of stock as far as Wall Street Analysts and Seeking Alpha Authors are concerned, giving it a "Strong Buy" and "Buy" rating. Active corporate insiders in the first quarter were CEO James Burke and Director Scott Helm, who bought back a total of $1.3 million worth of Vistra shares for an average estimated price of $24.74. The company is currently selling for $24.69 per share.

Other notable mid-cap stocks with a strong insider buying record for the first quarter that have failed to make it onto the shortlist include V.F. Corporation ( VFC ), Stifel Financial ( SF ), Matador Resources Company ( MTDR ), Chart Industries ( GTLS ), Dun & Bradstreet Holdings ( DNB ), Dish Networks ( DISH ), First Financial Bankshares (FFIN), Glacier Bancorp ( GBCI ), Elanco Animal Health ( ELAN ), Ryan Specialty Holdings ( RYAN ), CVB Financial Corp. ( CVBF ), HighPeak Energy ( HPK ), and Tidewater ( TDW ), among others.

Closing thoughts

Similar to our large-cap coverage published last week, energy companies and banks have seemingly dominated insider purchasing activity for the first quarter in the mid-cap segment as well. Bank insiders continue to signal that the banking crisis is overblown in their eyes, or at least concerning their respective banks. On the other end, judging by the actions of energy and utility insiders, those industries have more than a fighting chance to continue to outperform the broader market. We stand firm by the belief that investors should open the door for alternative data in order to enhance their investment process, but the list of companies provided today should be used as a starting point for more in-depth and detailed research.

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