For the retail investor, insider trading is one of the best indicators of a stock’s potential future performance. Insiders, of course, are far more benign than the connotations of the name. They are corporate officers, residents of Suite C or members of the Board. Their positions give them a close view of the inner workings of a company, and this view guides them when trading their own company’s stock.
Insiders’ knowledge of the company gives them an edge in their trading, providing an advantage over other traders of the same stocks. To maintain a level playing field, regulators require insiders to publish their trades, allowing the public to follow those trades. The key point to remember is that insiders generally only buy their own shares when they are sure the price will rise.
We used the Insiders’ Hot Stocks tool to get insights into a pair of stocks that some insiders have spent at least $1 million on. Insiders are cautious in their trading activities, and their purchases of such substantial value demonstrate a clear willingness to take significant risks. These are the trades retail investors should look closely at.
Now, let’s take a closer look at these trades and what analysts have to say. This will help us understand why following in their footsteps might be a smart move.
Oneok, Inc. (OK)
Let’s start with Oneok, a major midstream company specializing in natural gas. Oneok has one of the highest-rated natural gas liquids systems in the United States, and its network connects the Permian, Midcontinent, and Rocky Mountain regions to major market centers. Oneok’s network includes a range of natural gas gathering, processing, storage and transmission assets, making the company a leading provider of midstream services.
Last May, Oneok made an important decision to expand its network, with the announcement of its agreement to acquire Magellan Midstream Partners. This move will make Magellan a wholly-owned subsidiary of Oneok and give Oneok a presence on the Gulf Coast. The combined asset network will include more than 25,000 miles of pipeline. The acquisition transaction is valued at $18.8 billion in cash and stock, and is expected to close during 3Q23.
In view of the closing of this transaction, we can consult Oneok’s latest quarterly report, for an overview of the company’s situation. 1Q23 revenue was $4.52 billion, down nearly 17% year-on-year and below guidance of $827 million. Profits, however, exceeded forecasts; the EPS figure of $2.34 was 5 cents higher than expected.
Better-than-expected earnings helped support a strong dividend, which Oneok declared at 95.5 cents per common share in April and paid in May. At the current rate, the dividend payment cancels out at $3.82 per share and yields a yield of 6.3%, contributing significantly to the stock’s yield value.
Regarding insider activity, we see that the company’s President and CEO, Pierce Norton, recently purchased 24,607 shares of OKE, for which he spent $1.5 million. This was by far the largest transaction made recently by a Oneok insider.
All of this has caught the eye of Stifel analyst Selman Akyol, who is impressed with Oneok’s acquisition activity and ability to mimic large midstream companies.
“We view the acquisition of Magellan as providing ONEOK with increased scale and asset diversity while maintaining its concentric footprint on the Gulf Coast and Mid-Con. This will clearly make OKE more on par with corporate products or energy transfer in terms of diversity along the carbon chain. Equally important, it provides OKE with immediate synergies totaling $200 million and potentially a runaway to reap total synergies of over $400 million over the next few years. OKE has wanted to be able to export NGLs and we believe that, either through additional assets or potentially reallocating assets, OKE could be much closer to achieving this given Magellan’s access to water,” said Akyol said.
These comments support the analyst’s buy rating, while his price target of $76 suggests OKE will appreciate around 25% in the coming months. (To see Akyol’s record, click here)
Overall, OKE has a moderate buy consensus rating, based on 12 recent analyst analyzes with a breakdown of 7 buy, 4 hold and 1 sell. The stock is currently trading at $60.94 and its average price target of $70.55 implies room for growth of around 16% going forward. (See Oneok Stock Predictions)
The place of children (PLCE)
We will now switch gears and move from the energy industry into the realm of children’s retail, where we will explore the top player, Children’s Place.
Notably, Children’s Place holds the position of the largest children’s clothing retailer in the North American market. The company designs its own lines of clothing for children from birth to school age, and it contracts out the manufacture of these models. Additionally, the company controls both retail and wholesale marketing and sales.
Children’s Place sells its products under several brands, including the famous eponymous label Children’s Place, Baby Place and Gymboree, among others. At the end of the company’s first quarter — late last April — Children’s Place operated 599 stores in the United States, including Puerto Rico and Canada. Internationally, the company had five international franchise partners, controlling 212 distribution outlets in 15 countries.
The economic turmoil of recent years has been difficult for Children’s Place, and the company’s shares have fallen 28% since the start of this year. However, the last few weeks have been better and the PLCE has joined the general uptrend – the stock has gained 81% since its June 1 low.
In terms of financial results, we note that Children’s Place’s latest report, for the first quarter of fiscal 2023, ending April 29, showed revenue of $321.64 million. This is an 11% year-over-year decline, which missed estimates of $16.82 million. Ultimately, earnings also missed expectations, with non-GAAP EPS of -$2.00 coming in 22 cents below expectations. The EPS figure was a poor comparison with the EPS profit of $1.05 recorded in 1Q22.
Despite financial difficulties, Children’s Place CEO Jane Elfers bought 43,000 shares earlier this month. It was a major insider buy, for which Elfers paid $1.019 million. His stake in the company now stands at more than $8.8 million.
She’s not the only bull here, either. Jeff Lick, who covers PLCE for B. Riley, views Children’s Place as an undervalued growth opportunity and recommends investors get in now. In his words, “We continue to love PLCE’s foundational and transformational story. From a stock setup perspective, we’d be remiss if we didn’t highlight the idea that it looks like PLCE now has four straight quarters of low expectations, potentially explosive upside catalysts and seemingly easy comparisons.
“We do not wish to ignore the effects that current and prolonged economic headwinds can and have had on PLCE’s financial results. In our view, the company-specific transformative elements of PLCE’s history, coupled with its proven cash flow generation and low valuation based on our 2024 estimates, simply represent too significant of a potential upside. outsized yield as well as a reasonable level of downside protection to get through,” the analyst added.
In addition to his buy rating on the stock, Lick gives PLCE a price target of $43, implying a one-year gain of 64%. (To see Lick’s track record, click here)
Overall, Children’s Place shares have an analyst consensus moderate buy rating, based on 3 recent valuations that include 1 buy to 2 take. The stock is selling for $26.22 and its average target price, at $30.67, suggests it will gain around 17% over the next 12 months. (See PLCE stock forecast)
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Disclaimer: The views expressed in this article are solely those of the analysts featured. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.