Insider trading activity is one of the most powerful forces in the stock market. Large transactions or even smaller transactions made by influential executives and institutions can have a major impact on where a stock trends. But should all insider trades be considered the holy grail of stock information?
The answer is no. Some insider trades carry more weight in the market because they are made by individuals or firms that have a successful track record of entering and exiting equity positions. Others are less meaningful to investors because the trader lacks a trading history or has ill-timed their buys and sells.
Last week there was a healthy amount of insider activity amid higher trading volume compared to the holiday-shortened previous week. These are three of the biggest…but are the brightest?
Is Bill Gates Selling Canadian National Railway Stock?
Bill Gates is one of the brightest business minds in the world, so when he sold Canadian National Railway (NYSE: CNR) last week, the market took notice. In fact, the Microsoft co-founder turned philanthropist, has sold on five occasions over the last two weeks.
Friday’s $232 million sale of Canadian National Railway was the tip of the iceberg. Since the start of the month, Mr. Gates has banked nearly $1.1 billion from the selling shares of the Canadian railroad operator. The timing is intriguing for two reasons.
First, we learned last week that rival Canadian Pacific Railway has won a weeks-long battle to acquire U.S. peer Kansas City Southern. And as Canadian National Railway had offered $29.6 billion for the deal, it now has spare cash to go around. On Friday, the company announced that it would resume its stock repurchase program, a bullish development for shareholders.
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Mr. Gates has also been in the news regarding his rather public divorce. Could the selling activity simply relate to a need to raise funds for legal proceedings and settlements?
Usually, when an investor of Bill Gates stature makes a move, investors would be foolish to make a contrarian move. In this case though, given Canadian National’s renewed focus on its own operations and Mr. Gates personal matters, it doesn’t appear to be a good time to climb aboard this sell.
Are Insiders Buying Designer Brands Stock on the Dip?
Last week Designer Brands (NYSE: DBI) Executive Chairman Jay Schottenstein bought 178,594 shares of the footwear retailer on behalf of a limited partnership in which he has an indirect interest. He has several other direct and indirect interests in Designer Brands and is a major shareholder.
Investors may wish to consider mimicking this buy because Mr. Schottenstein has a solid track record when it comes to trading consumer stocks. He is also a 10%-plus owner of grocery store operator Albertsons which like Designer Brands is in turnaround mode. His best-known insider trades have been in American Eagle where he is the CEO. From 2010-2016 he repeatedly bought the stock on weakness and has seen it soar to record highs this year.
Mr. Schottenstein’s most recent Designer Brands buy came at an average price of $12.62. In May 2021, the stock stretched its run to $20.48, a little over a year after dwelling in penny stock territory. Since this insider is no stranger to buying strong clothing retail brands on the dips, the 38% correction in Designer Brands may turn out to be another fashionably timed entry.
Is the Roku Pullback a Buy Opportunity?
Roku (NASDAQ: ROKU) has been one of the hottest stocks over the last few years. The streaming entertainment provider skyrocketed 337% and 148% in 2019 and 2020, respectively. So, it stands to reason that investors would be looking to take profits in 2021 with the stock taking a breather from its enormous gains.
But when that investor is Roku CEO and Chairman Anthony Wood, the selling matters a lot more. Last week, the executive completed a $25.3 million sale of Roku for the Wood Revocable Trust. The execution prices ranged from $312.64 to $319.31.
In July, Roku’s share price came within $10 of reaching the $500 mark, a far cry from its days as a $20 stock four years ago. So, with Roku well off its all-time highs and riding a three-month losing streak, the timing of Mr. Wood’s sell should make investors a bit weary. Are the company’s best days behind it?
With cord-cutting and the shift to streaming TV accelerated by the pandemic, Roku has seen a flood of entrants clamoring to get a piece of the modern media market. Thus far its differentiated platform and strong third-party relationships have enabled it to fend off the competition, but there could be cracks in the armor.
While the popularity of the Roku and digital advertising are as strong as ever, the company’s expense profile has become elevated amid an aggressive international marketing campaign. Whether the impact on profit growth turns out to be temporary remains to be seen. However, with its leader selling here, investors may want to think twice about buying the Roku dip.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Cornerstone Building Brands (CNR) | $24.66 | flat | N/A | 4.13 | N/A | N/A |
| Designer Brands (DBI) | $5.52 | +9.5% | 3.62% | -55.20 | Hold | $7.83 |
| Roku (ROKU) | $68.22 | -1.4% | N/A | -56.85 | Moderate Buy | $84.14 |
