These SEC Filings Indicate Large Insider Buying
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One of my weekly rituals as an investor is to review recent insider activity through the Securities and Exchange Commission’s Form 4 filings. Corporate executives and board members (“insiders”) are required to fully disclose their stock purchases pursuant to the Securities Exchange Act of 1934 and the Investment Company Act of 1940.
Individual investors can benefit greatly from studying insider activity. Whether you are taking a sector view or considering investment in an individual company, learning to read the SEC filings can be a powerful resource and strengthen your overall investment thesis.
Here are three large insider purchases that caught my eye in recent days:
Adobe Systems (NASDAQ: ADBE)
Board member Amy Banse purchased 5,000 shares of Adobe common stock on the open market for approximately $38.06 per share. The total transaction value amounted to $190,300 when the stock was bought on January 16. Banse is one of three members who joined the Adobe board in May, when the company announced the expansion of its board of directors from nine members to twelve. Outside of Adobe, Banse is currently a senior vice president at Comcast Corporation.
Adobe reported fourth quarter 2012 earnings on December 13, and shares rose more than 6% in the after hours session. The company is poised to benefit from a change in its software licensing model over coming quarters. Traditionally, Adobe has been an unfortunate victim of software piracy, with its popular Creative Suite and Photoshop design software being illegally distributed without consent or valid product license. The company is moving to an Internet-based subscription model with its new Creative Cloud suite, where users are required to login to Adobe’s own website in order to complete their design work. Software giant Microsoft is also transitioning its productivity software to an online cloud-based version via Office 365.
On December 20, Adobe Systems announced the purchase of Behance, an online social media platform designed for creative artists to showcase their work. The acquisition allows Adobe to integrate its Creative Cloud suite with Behance’s existing platform, which has over 1 million members. During Adobe’s fourth quarter, new subscriptions to Creative Cloud reached 8,000 per week, exceeding management’s guidance of 5,000 per week. I believe the recent acquisition of Behance will accelerate Adobe’s transition to the cloud even faster, and bring immediate benefits for the company. Terms of the deal were not disclosed.
Adobe’s 2012 fiscal year ended on November 30. The company’s first quarter 2013 earnings call is scheduled for Tuesday, March 19.
Brown-Forman Corporation (NYSE: BF-B)
This $14 billion dollar alcoholic beverage manufacturer got its roots when George Garvin Brown founded the company in 1870. Readers most likely can associate the Louisville, Kentucky headquartered company with its principal brands such as Finlandia Vodka, Jack Daniel's, Tennessee Whiskey, and Southern Comfort.
Vice President J. McCauley Brown purchased 15,500 shares of Brown-Forman Class B stock on the open market for approximately $63.80 per share. The total transaction value amounted to $992,000 when the stock was bought on January 15.
Brown is a descendant of the original founder and one of many family members at the company. According to multiple online sources, Brown holds an MBA from George Washington University and an undergraduate degree in business from Georgetown University. Prior to being promoted to Vice President in 2002, Brown served as Brand Director, Sales & Marketing of various Brown-Forman brands and a Regional Director in 24 states. He has been with the company since 1972.
During the company’s Q2 2013 conference call on December 5, management raised guidance for the 2013 fiscal year to $2.58-$2.70 earnings per share from a previous range of $2.40-$2.67. Brown-Forman expects high single-digit revenue growth for the current year, while operating income is expected to increase by low double-digits due to gross margin expansion (improvement in pricing).
The company has two classes of common stock that trade on the New York Stock Exchange, with the difference being Class A shares carry voting rights while Class B shares are non-voting. The Brown-Forman Corporation Class A (NYSE: BF-A) shares are thinly traded, as the Brown family is the majority owner and maintains control of the company. Readers interested in investment in Brown-Forman should consider the Class B stock due to greater liquidity.
Shareholders of Brown-Forman also approved a 3-for-2 stock split at the company’s annual meeting on July 26, and the stock split took place on August 3. The company notes on its website that its total shareholder return (capital gains + cash dividends) has consistently outpaced the S&P 500 over 5-year, 10-year and 15-year periods.
Synergy Resources (NYSEMKT: SYRG)
Synergy Resources is an oil and gas operator with a market capitalization of approximately $400 million. Shares have risen approximately 137% in the last 52 weeks, yet insiders are still buying in large quantities at the current market price. Synergy Resources’ oil and gas efforts are focused on the Wattenberg Field located at the Denver-Julesburg Basin in Northeast Colorado.
Two insiders have purchased a total of $674,000 worth of stock on the open market during January. Board member Rick Wilbur recently purchased 50,000 shares of stock at $5.86 per share. The total transaction value amounted to $293,000 when the stock was purchased on January 16. Wilbur’s business experience lies in the management of development stage companies and is not unique to the oil and gas industry. Wilbur co-founded Champs Sporting Goods in 1974 and also serves on the board of directors at Ultimate Software Group, a private technology company. Wilbur also served on the board of a pharmaceutical company that was sold to Watson Pharmaceuticals, the generic pharmaceutical giant. Rick Wilbur has been on Synergy Resources’ board of directors since September 2008.
Board member George Seward, an oil and gas industry veteran, purchased 15,000 shares of stock at approximately $5.88 per share. The total transaction value amounted to $88,150 when the stock was purchased on January 15 and 16.
Seward came back a week later and bought 50,000 more shares of stock at $5.86 per share on January 24. The cost of the second transaction amounted to $293,000, bringing his total purchases in January to nearly $400,000 of stock. Seward has been a board member at Synergy Resources since July 2010.
On a fundamental basis, Synergy Resources reported first quarter 2013 results on January 9. Revenue rose 86% to $8.3 million, while net income increased 38% to $2.2 million or $0.04 per share.
The mean analyst price target is $7.36, with the highest price target at $10 per share and the lowest target at $6.50. Equity research firm Northland Capital Markets has the highest price target on Wall Street, and the firm raised their price target to $10 as recently as Friday, February 1.
Revenue has grown approximately 120% in the last year at Synergy Resources, while earnings per share has exploded higher at a 150% annual growth rate. The company is continuing to expand its drilling program in the D-J Basin, which is the reason for the massive increase in earnings and revenue. Net oil and gas production increased 89% to 150,909 barrels of oil equivalent (BOE) during the first quarter of 2013, compared to the identical prior year period.
Foolish Bottom Line
While there are numerous reasons for corporate executives to sell, insider buying takes place for only one reason. Furthermore, these individual companies have a strong fundamental basis for investment.
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