After a run of gains since June 12, markets are taking a turn down today. The slip, over 2.5% on both the S&P 500 and the Dow Jones, comes after Florida confirmed more than 5,500 new coronavirus cases. The sudden spike raised new fears that the still-fragile economic reopening may be derailed. The mood wasn’t helped by orders from the states of New York, New Jersey, and Connecticut – which had all been hard-hit by the virus – that all visitors from known hot spots must self-quarantine for 14 days.
In times like this, it’s a comfort for investors to follow a reliable trading signal. Corporate officers, who are privy to the inside information on their companies, have an obligation to serve the best interests of their shareholders, and are held responsible for their actions, don’t jump lightly when it comes to trading. That duty and accountability, and the legal requirement to disclose all trades in the companies they serve, makes following corporate officers – the insiders, if you will – a common strategy for investors.
TipRanks has the data and the tools to unwind the insiders’ actions. The Insiders’ Hot Stocks tool highlights the equities that corporate insiders are moving on. We’ve picked two stocks that show signs of informative buys, purchases that are more extensive than ordinary. Let’s look at the details.
Magnolia Oil & Gas (MGY)
We will start with Magnolia, a small-cap oil and gas exploration and production company based in Texas’ Eagle Ford formation. Eagle Ford is part of the Permian Basin, the rich petroleum region which has propelled Texas to the forefront of the North American hydrocarbon industry.
Magnolia’s production beat estimates in Q1, reaching 68.4 thousand barrels of oil equivalent per day. If that total, 55% was crude oil. Weakness in oil prices hurt Magnolia during the quarter, and forced a net loss of 11 cents per share. MGY stock performance was followed the earnings, and the company’s shares are still down 35% since February.
Company CEO Steve Chazen cast a vote of confidence this week when he spend almost $300,000 buying up a bloc of 50,000 shares in MGY. Chazen has been making periodic purchases of Magnolia shares for the last two years.
Covering this stock for MKM Partners, analyst John Gerdes is also optimistic about Magnolia. He looks at forward production estimates, and sees the company generating plenty of cash: “Assuming ~$260 million in capital expenditures this year, Magnolia should generate ~$50 million of FCF in 2020 assuming NYMEX ~$33 oil/~$2.10 gas. Assuming approximately $250 million in capital spending next year and NYMEX $45 oil/$2.65 gas, the company should generate ~$130 million of FCF in 2021…”
Gerdes uses his FCF assumptions to justify a Buy rating and a $7 price target, which implies a 25% one-year upside. (To watch Gerdes’ track record, click here)
Magnolia shares are priced at just $5.59, and the average price target of $6.38 suggests it has room for 14% upside growth in the next 12 months. MGY’s Moderate Buy consensus rating includes 6 Buys and 3 Holds set in the last month. (See Magnolia stock analysis on TipRanks)
Groupon, Inc. (GRPN)
At first glance, e-commerce innovator Groupon should have weathered the coronavirus storm better than it did. Shares are still far down from February’s trading levels, and first quarter earnings turned sharply negative after holding at or near break-even through 2018 and most of 2019. Q4 2019 saw strong profitability; that ended abruptly in Q1 2020.
On a positive note, the EPS loss was far narrower than had been feared. The company finished Q1 with a strong cash position, too, having some $667 million on hand. That total includes $150 million borrowed from a revolving credit facility.
But the big news for GRPN stock comes from company chair and co-founder Eric Lefkofsky. He bought up 250,000 shares, spending $5.39 million to add that to his already extensive holdings. Lefkofsky’s move signaled that GRPN is worth buying – especially because his declared purchase price was over $21 per share. GRPN was trading for less than that when Lefkofsky made his buy, and it is still trading for less today. This gives investors a rare chance to snap up common stock for less than the price paid by the best-informed insiders.
Wedbush’s 5-star analyst Ygal Arounian sums up the cautious Wall Street consensus on this stock. He sees some strong opportunities for the company in the near future, writing, “One area of potential upside for Groupon is in Goods, where the company noted that it is seeing traction in recalibrating its assortment towards areas like first aid, face masks, and more recently, outdoor furniture/gardening… the overall buoyancy in ecommerce should provide tailwinds…”
However, he also notes that the company’s large outdoor events segment has been derailed by COVID-19, and efforts to adapt are facing the distinct possibility of a coronavirus resurgence. Arounian remains neutral here, placing a Hold on the stock with a $22 price target. His target suggests a 11% upside potential. (To watch Arounian’s track record, click here)
The conventional wisdom on GRPN shares is to Hold. This analyst consensus rating is based on 4 Holds and 1 Sell sent in recent weeks, along with 2 Buys. The stock is selling for $19.89, but the average price target is bullish. At $25.71, it suggests a strong 29% upside potential in the year to come. (See Groupon stock-price forecast on TipRanks)
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