The world’s best investor, Warren Buffet, once said to be fearful when others are greedy, and greedy when others are fearful. Corporate insiders did the latter in March. Insider buying activity hit a record high in March 2020. That is, while the broader markets were plunging on concerns that the novel coronavirus outbreak was bringing the global economy to a halt, corporate insiders were looking for stocks to buy — and they pulled the trigger, buying stock in their own companies in record-high volumes at record-low prices.
What does that mean? A lot.
Just look at this chart from Bloomberg. Insiders are often early in calling bottoms. But they are seldom wrong. According to Nejat Seyhun, a University of Michigan finance professor, stocks with significant insider buying don’t just tend to go higher; they also tend to outperform the market.
So, what stocks which insiders bought big in March should you be buying now?
Consider these five stocks to buy now, all of which had big insider buying in March:
- Williams Sonoma (NYSE:WSM)
- Stitch Fix (NASDAQ:SFIX)
- The Simply Good Foods Company (NASDAQ:SMPL)
- MGM Resorts (NYSE:MGM)
- Mersana (NASDAQ:MRSN)
Stocks to Buy: Williams Sonoma (WSM)
Alongside pretty much every other retail stock in the world, shares of cookware retailer Williams Sonoma have plunged amid the coronavirus pandemic on fears that the company simply won’t sell that many pots, pans, knives and waffle makers over the next few weeks.
After all, the company’s stores are closed throughout the U.S. and Canada, and most consumers have cut back significantly on discretionary spending.
But … aren’t all consumers eating at home now? Doesn’t that mean there should be, to some extent, a boost in demand for at-home cookware products? Yes. Given that Williams Sonoma sells the type of stuff which boosts the at-home cooking experience, the company’s demand trends shouldn’t fall off a cliff here. If anything, they could improve some.
Plus, more than 50% of the company’s revenues come from e-commerce. That means the closure of stores won’t be a huge hit. And the company has $432 million in cash on the balance sheet. Net cash stands at $132 million.
All in all, Williams Sonoma isn’t in a terrible position. But WSM stock has fallen off a cliff. And insiders are taking advantage of that discrepancy.
In late March, board member and private equity investor Scott Dahnke bought $400,000 worth of WSM stock. Two weeks later, Board Chairman Adrian Bellamy bought $485,000 worth of WSM stock.
I’d follow the insiders here. Williams Sonoma will weather this storm, and WSM stock will bounce back.
Stitch Fix (SFIX)
Next on this list of stocks to buy is online personalized styling service Stitch Fix. It’s had a rough run during the coronavirus pandemic, and reasonably so.
Consumer discretionary spending has fallen off a cliff amid the pandemic. With discretionary spending plummeting, consumers aren’t looking to sign up for add-on discretionary services, like Stitch Fix. This double whammy was apparent in Stitch Fix’s second-quarter earnings report, which included below-consensus numbers and a weak third-quarter guide.
SFIX stock has plunged ever since, and insiders have bought this dip … aggressively.
Venture capitalists and board members Bill Gurley and Steve Spurlock together bought over $3.8 million worth of SFIX stock in mid-March. They followed that up by buying $31.6 million worth of SFIX stock in early April. All together, then, these venture capitalists have poured more than $35 million into SFIX stock over the past five weeks.
That’s a huge amount of money — and I think it’s a smart move.
Stitch Fix is in the early stages of revolutionizing online apparel retail, transforming it from a guess-and-check, time-consuming process, to a data-driven, concise and hassle-free process. Over the next several years, the platform will on-board millions of consumers across the globe looking to improve their wardrobe and mitigate the hassle of shopping. As they do, Stitch Fix’s revenues and profits will soar higher.
So will SFIX stock.
The Simply Good Foods Company (SMPL)
The Simply Good Foods Company owns three big brands (Atkins, Simply Protein and Quest). All three of those brands sell things like protein bars, protein shakes and other diet-focused snacking products.
This is the right market to be in. Consumer demand for health-oriented, nutritional snacks, foods and drinks is rising amid a broader increase in consumer desire to be healthy, fit and active. Simply’s numbers speak to this. The company just announced second-quarter numbers in which organic sales rose more than 12%, and net sales rose more than 80% (powered by the acquisition of Quest).
The company did, however, pull its full-year 2020 guidance amid concerns that unusual consumer spending behavior make it hard to forecast how Simply will perform over the next few months. This uncertainty has weighed on SMPL stock. Shares are down more than 20% from where they were in late February.
But here’s the thing: Consumers are still going to buy Atkins protein bars and Quest protein drinks during the pandemic because they still need to eat and they still want to be healthy. They are also going to keep buying those products once the pandemic passes for the same reasons.
In other words, Simply’s fundamentals remain strong. The recent dip in SMPL stock, then, is nothing more than a buying opportunity.
That’s why the company’s Board of Directors went on a buying spree in April. Former CEO of Gillette and current Simply board member James Kilts bought nearly $800,000 worth of SMPL stock in April. Fellow board member Nomi Ghez bought almost $500,000 worth of SMPL stock in April. Three other board members bought at least $100,00 worth of stock in April, while two others bought at least $40,000 worth.
I think following these insiders is the right move. SMPL stock is going higher from here. It’s a perfect addition to this list of stocks to buy.
MGM Resorts (MGM)
Because of the coronavirus pandemic, consumers have stopped traveling, spending on leisure items and frequenting social locations. That implies a triple whammy for resorts and casino operator MGM.
All of that means that people aren’t even going to Las Vegas or Macau right now, let alone going into casinos (which are closed) and spending money on dining and entertainment. The well has dried up.
In response to this apocalyptic situation, MGM stock has fallen off a cliff. From peak to trough, MGM stock fell from $35 to below $6.
Insiders bought this dip with both hands. Chairman of the Board, Paul Salem, bought nearly $8 million worth of MGM stock in late March and early April. Fellow board member and activist hedge fund manager Keith Meister bought more than $18.7 million worth of MGM stock around the same time. Six other board members together purchased more than $1.1 million worth of MGM stock.
In total, the company’s Board of Directors has gobbled up more than $27 million worth of shares over the past three weeks.
Those trades will pay off in the long haul.
Will the coronavirus pandemic kill the gambling industry? No. What about the travel industry? No. The accommodations industry? The entertainment industry? No and no. Long after this virus passes, Las Vegas and Macau will still be very busy.
So, by 2021, MGM will resume operations as normal. When that happens, this big selloff in MGM stock will turn into a big rally.
Mersana (MRSN)
Last, but certainly not least, on this list of stocks to buy with heavy insider buying, we have clinical-stage biopharmaceutical company Mersana.
What Mersana does is fairly complex. But, here’s my best attempt at simplifying the bull thesis.
Cancer is a huge a problem. It’s the number two cause of death in the United States. At present, traditional chemotherapy is one of the most popular cancer treatments out there. But it’s imperfect. Both because it’s not wholly effective, and because it causes significant side effects by killing healthy cells as well as cancer cells.
Over the past few years, there have been some big breakthroughs in cancer treatment technology to fix these chemotherapy shortcomings. Specifically, multiple companies across the globe have developed what are called antibody-drug conjugates (or ADCs), which leverage monoclonal antibodies to target only cancer cells and leave healthy cells alone. Think chemotherapy, without the side effects.
Mersana is one of those companies.
More than that, though, Mersana has created proprietary ADC technology platforms which enable the company to rapidly develop various ADCs with different end-market applications. These technology platforms pave the groundwork for the $350 million company to one day be an important player in the near $100 billion chemotherapy market.
Despite all that potential, MRSN stock dropped big amid the coronavirus pandemic because … well … every stock dropped during the pandemic.
Recognizing the silliness of this, Mersana insiders bought the dip. Board member and private equity investor Andrew Hack bought a whopping $20.6 million worth of MRSN stock on April 7. On that same day, longtime board chair and venture capitalist David Mott bought $3 million of MRSN stock.
I say follow the insiders. This is a long-term winning biotech company that will shake off coronavirus concerns.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he did not hold a position in any of the aforementioned securities.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he did not hold a position in any of the aforementioned securities.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he did not hold a position in any of the aforementioned securities.