I like the stocks of companies whose top executives are buying their own shares. Lately, that includes Albemarle
ALB
, East West Bancorp
EWBC
and Matador Resources
MTDR
.
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Albemarle
Lithium is a hot commodity because it’s used in electric vehicle batteries. A leading miner, processor and seller of lithium is Albemarle, based in Charlotte, North Carolina.
J. Kent Masters, Albemarle’s chairman and chief executive officer, bought more than 51,000 Albemarle shares in May, paying about $993,000. The stock is up about 14% since his purchase.
Kristin Coleman, the company’s general counsel, and Eric Norris, president of energy storage, also bought shares in May, each spending close to a quarter of a million dollars.
Albemarle mines lithium at the Silver Peak mine in Nevada, and in Australia and Chile. Its customers include Tesla
TSLA
and Ford.
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While lithium is mined mostly in Australia and Chile, China controls some 58% of the world’s lithium-processing capacity. Albemarle operates in China via a joint venture, but China has been known to pressure foreign companies and I think there is some risk of expulsion or expropriation.
Perhaps that is one reason why the stock is modestly priced, at 11 times the earnings analysts expect the company to post in the next year.
Despite my concern about the company’s China operations, I like these shares.
East West
East West Bancorp is a banking company in Pasadena, California that finances a lot of film and television projects in both China and Hollywood. It is one of a few U.S. banks with a full banking license in China.
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There’s that China risk factor again. Investors also worry about the soundness of U.S. regional banks, given that three significant ones–First Republic Bank
FRC
, Silicon Valley Bank and Signature Bank—have failed this year. Before their demise, they ranked 14th, 16th and 29th in the U.S., by assets, respectively.
Of course, these worries hit bank shares hard. East West traded for almost $81 a share in February, but has slid to about $52 now. At today’s price the market values it at only six times earnings and 1.2 times book value (corporate net worth).
Dominic Ng, the bank’s chief executive, bought 17,600 shares in May, paying about $751,000. Five company directors also bought shares in May, as did Irene Oh, the chief financial officer, Parker Shi, chief operation officer, and Gary Teo, executive vice president.
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The stock is up 15% to 21% since these individuals bought, but I think it is still a good speculation.
Matador Resources
Matador Resources, out of Dallas, Texas, explores for and produces oil and gas, mostly in shale formations. Horizontal drilling and fracking are its métier.
Joseph Foran, Matador’s chairman and chief executive officer, bought 2,652 shares in May and early June, spending about $112,000. That’s a drop in the bucket compared to his total holding of 5,277,320 shares, valued at about $250 million as of June 2.
Other recent buyers at Matador were Billy Goodwin, president of operations, two directors and one executive vice president. Most have a small gain on their purchases thus far.
Like many energy companies, Matador had a few loss years in 2015-2020, although it did eke out a profit in three of those six years. Lately it’s been quite profitable. At six times estimated earnings, I think the stock is attractive.
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Past Record
Beginning in 1999, I’ve recommended 96 stocks where insiders were buying (and at least a year has passed since the recommendation). On average, these have beaten the Standard & Poor’s 500 Total Return Index by 1.3 percentage points over the ensuing year.
I’ve said to avoid 27 stocks even though executives were buying. Those have trailed the S&P 500 by more than 24 percentage points over 12 months. I’ve noted insider selling in 43 stocks. These have trailed the index by 1.4 percentage points. Finally, there were 14 stocks where I noted insider buying but made no recommendation, or an ambiguous comment. Those have beaten the index by 16 percentage points.
Bear in mind that my column results are hypothetical and shouldn’t be confused with results I obtain for clients. Also, past performance doesn’t predict the future.
A year ago, I recommended three regional bank stocks whose chief executive officers had been buying shares. First Citizens BancShares (FCNCA) rose 89%. But Customers Bancorp
CUBI
declined 37% and Merchants Bancorp (MBIN) lost 5%. The average gain on those three bank stocks was 15.5%, which compares favorably with 5.7% for the S&P 500.
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Disclosure: I own Merchants Bancorp shares personally and in a hedge fund I run.
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