My regular Real Money readers know I have grown more than cautionary on the market in recent months.
There are myriad reasons for my pessimism that the current equity rally can extend much further. These include a lack of breadth within the market’s rise outside of technology. In addition, the health of the consumer appears to be deteriorating at a significant clip and commercial real estate is looking like it will be a major drag on the regional banking system as default rates rise and hundreds of billions of dollars of debt maturities need to be rolled over at much higher interest rates.
Most importantly, monetary policy always acts with a significant lack and the economy is just beginning to feel the effects of the Federal Reserve lifting rates by 525 basis points in less than a year and a half.
Way down there on my list of concerns is the lack of notable insider buying in recent months. While significant insider selling is easy to find on a weekly basis, there haven’t been a lot of noteworthy insider purchases I have come across in recent months.
Today, however, I want to highlight several interesting names with recent insider buying. All come from the energy sector, which has the largest allocation among the long positions within my portfolio.
First up Exxon Mobil (XOM) . One director at Exxon is signaling he believes the stock of the oil giant is undervalued based on his purchase of nearly 600,000 shares since July 31.
This is the first insiders’ buy in Exxon Mobil in 2023. It’s hard to argue with his logic, in my view, as energy is the largest allocation I have in my own portfolio at the moment. XOM is trading at eight times trailing earnings, has a pristine balance sheet and yields 3.3%.
Oil services and deep-water concern Tidewater (TDW) also has a director enthusiastic about the company’s prospects. Indeed, he has dropped around $11 million since the end of July to up his stake in the firm.
Tidewater collected a couple of new analyst firm (Evercore ISI and Raymond James) “buy” rating initiations in July as day rates for the industry rigs are starting to climb.
Company revenues are expected to be up better than 50% in 2023 and analysts have earnings projected to more than double in 2024. If those projections hold, the stock seems more than reasonably valued at nine times 2024 EPS projections.
Midstream concern Energy Transfer LP (ET) saw its Executive Chairman add three million ET shares to his holdings in August. This company is a major player in the transportation of natural gas and crude oil throughout the United States.
ET trades at 10 times earnings and pays out just over 9% in dividend payouts on an annual basis.
While I hold none of these stocks individually, Exxon Mobil is the largest holding in the Energy Select Sector SPDR Fund ETF (XLE) , a substantial position within my portfolio held via covered call holdings.