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Markets Go Up, Sentiment Not Following
The word "INSIDER" displayed in a blue and green ticker tape.
Source: Shutterstock
Admittedly, I’ve recently sounded like reruns of Seinfeld, a TV series that famously aimed to be “a show about nothing.” Everything we’ve covered this week, from electric vehicles (Volcon, Polaris) to crypto (Hive, Polygon) have come to the same conclusion:
These are great long-run buys, but the timing is wrong.
There are, however, some stocks where the timing is perfect. So rather than leave you with no soup this week, here are three Moonshot stocks where even insiders have decided that the time is right to get in.
An illustration of an astronaut popping out of the top of a big ice cream cone.
Source: Catalyst Labs / Shutterstock.com
The 3 Stocks Insiders are Scooping Up
Regular Moonshot readers will know I’ve been bearish about cryptos and other momentum-driven investments since last November. When Federal Reserve Chairman Jerome Powell uses his megaphone to yell “I’m raising interest rates soon,” it’s probably a good idea to stop and listen. Taking away the $5.4 trillion stimulus package will certainly leave a large crater.
Yet the Fed’s hawkishness has caught investors by surprise. Bitcoin has dropped almost 50% below its all-time highs, and debt-laden companies like AMC Entertainment (NYSE:AMC) are starting to sweat about refinancing their loans. Even I’ve been surprised by the magnitude of the market’s reaction.
There are, however, two kinds of stocks to buy during downturns.
Deep Value. Profitable companies with valuable assets have an “intrinsic value” that gives them a floor price. If your company owns $50 million of land and has zero debt, then any market valuation below $50 means you’re getting a company for free.
Biotech Bets. Clinical trials keep moving forward, during good times and bad. And whether a drug proves effective is independent of what the economy looks like.
Today, we’re going to take a look at three stars that my Insider Track strategy has identified this week.
3 Stocks Insiders are Scooping Up: Osisko Mining (OBNNF)
In October, I wrote about Osisko Mining (OTCMKTS:OBNNF), a Canadian firm where insiders were purchasing large amounts of stock.
“Purchases by executives at mining exploration firm Osisko Mining suggest a literal gold mine discovery.” — Moonshot Investor, October 5
The assessment proved correct. A month later, the company announced a massive gold discovery.
“And just like clockwork, OBNFF announced they had struck gold. Drill holes at its appropriately-named Osisko Windfall site revealed gold deposits of up to 40 times greater than required for profitable mining.
At first, shares only rose 15% to $2.10, giving Moonshot readers investors a chance to jump in. But since then, OBNNF has continued to march up to $3.40, a 64% return. Latecomers might feel as if they’ve missed the boat…
…Until now.
In the past week, filings reported that insiders had bought another round of shares.
CEO: Bought 165,000 CAD
Director: Bought 38,600 CAD
VP Finance: Bought 15,000 CAD
These purchases suggest that the firm has found even greater value in its exploratory mines.
And that makes sense. The huge scale of geological formations mean a major discovery in one dig site can lead to similar findings in nearby locations. And since mining experts often know more about their sites than official announcements let on, OBNNF is a bet I’m still willing to make.
Entera Bio (ENTX)
Last November, I introduced Longeveron (NASDAQ:LGVN), a biotech firm developing therapies for aging-related illnesses. Insiders were buying up shares, and the firm was clearly in talks with the FDA for regulatory approval.
“Lomecel-B — the firm’s leading drug candidate — is particularly interesting because it’s been proven in similar anti-aging trials.
The rest is history. Shares jumped 1,100% to $45 after the company announced a surprise approval for Lomecel-B in infant heart conditions. And though prices have since cooled off, LGVN is still up in a big way.
Now, another biotech finds itself in a similar situation:
Entera Bio.
In the past week, multiple insiders have bought shares:
CEO: Bought $28,500
CFO: Bought $24,300
President of R&D: Bought $25,000
Directors: bought $35,000
And delving into Entera’s pipeline, it becomes clear why insiders are so bullish.
Earlier this year, the firm met with FDA officials about approval for its EB613 osteoporosis drug. The result: a 12-month study on bone density alone would be sufficient for phase-3 tests. No fracture studies are necessary.
For those who understand clinical trials, that’s game-changing news. Phase-3 trials can often take three years or more and require multiple endpoints. EB613’s low bar essentially means the FDA is fast-tracking the drug because the public needs it so badly.
Shares of Entera initially jumped 19% to $3.85, leaving less upside for Moonshot investors.
But since then, market wobbles have sent shares plummeting 40% to $2.30.
Insiders have taken that as a “buy now” sign. And if you’re looking for a second round of Longeveron, then Entera Bio is as close as you can get.
Greenwich LifeSciences (GLSI)
Finally, the Insider Track strategy has picked out Greenwich LifeSciences (NASDAQ:GLSI) as a stock to buy.
CEO: Bought $20,000
VP Clinical Affairs: Bought $30,000
CMO: Bought $20,000
Directors: Bought $10,000
First, the bad news. From a technological standpoint, GLSI looks much like any other oncology firm. The company is focused on a highly competitive and lucrative segment (breast cancer) and its FLAMINGO-01 phase-3 trials are underway.
In other words, GLSI’s pipeline makes it look like a typical biotech Moonshot: it’s either going to a billion dollars or going bust. And it all depends on the results of a single clinical trial.
But here’s the good news. Look under the financial hood, and Greenwich LifeSciences is nothing like its peers.
Earlier this week, the firm announced a share repurchase program that also extended the company’s share lock-up period until March 2023. Taken together with insider purchasing, this can only mean one thing:
Insiders believe GLSI shares are too cheap.
Companies typically only buy back shares when management believes that shares are undervalued (overvalued companies usually do the opposite and issue new shares instead). And because insiders are also purchasing shares to bolster their 30-month locked up ones, it’s a strong signal that insiders believe that FLAMINGO-01’s positive phase-2 results will also bear fruit in phase-3.
That makes GLSI a stock worth considering. At $18, the company is already 74% off its peak. And with a large addressable market, any win will surely send shares up 5x or more.
AMC Entertainment Continues to Stumble
Despite Reddit and Twitter’s best efforts, shares of AMC Entertainment continue to fall. This week, shares dipped to $16, a level not seen since last May.
Perhaps it was obvious this would happen. AMC has been the opposite of an Insider Track buy; CEO Adam Aron has sold every personal share he could, and the firm is now facing the reality of its fading business. Streaming services aren’t going away anytime soon.
This week, investors can add one more problem to AMC’s pile:
Its high debt load.
On Tuesday, news broke that the theater chain was in advanced talks to refinance. The company has more than $5 billion in loans outstanding, but Mr. Aron has repeatedly avoided dealing with the problem.
Now that interest rates are rising, time is running out. AMC already pays $400 million a year in interest payments — more than the theater chain has ever earned in any given year. Its high debt load means AMC will owe another $55 million per year for every percent rise in interest rates.
AMC Entertainment was already a zombie company before the pandemic hit. Now that Mr. Aron has squandered the opportunity to convert debt into shares, the company is starting to look more like a Shakespearean tragedy than a feel-good comedy.
A chart showing the price of AMC stock from 2020 to the present. and when the CEO sold shares.
The Morality of Insider Buying
I’ve always felt uneasy about executive buying. On one hand, we want business owners to have the freedom to invest. If we owned a biotech firm and had a good feeling about a drug in our pipeline, shouldn’t we be able to act on our insight?
But on the other hand, insiders clearly have an advantage over regular investors.
“Those crooks,” one reader commented to me in an email. “How do they get away with it?”
There is one consolation prize: all insiders must report trades if they’re an officer. And even though that misses a massive portion of executives trading stocks in other companies, it’s at least enough to give us a leg up in the wild world of Moonshot investing.
P.S. Do you want to hear more about cryptocurrencies? Penny stocks? Options? Leave me a note at moonshots@investorplace.com or connect with me on LinkedIn and let me know what you’d like to see.
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On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.
