{"id":10288,"date":"2023-09-11T21:02:57","date_gmt":"2023-09-11T21:02:57","guid":{"rendered":"https:\/\/prosfunds.com\/investing\/executives-bought-shares-at-forward-air-and-fox-should-you-follow-their-lead\/"},"modified":"2023-09-11T21:02:58","modified_gmt":"2023-09-11T21:02:58","slug":"executives-bought-shares-at-forward-air-and-fox-should-you-follow-their-lead","status":"publish","type":"post","link":"https:\/\/prosfunds.com\/?p=10288","title":{"rendered":"Executives Bought Shares At Forward Air And Fox, Should You Follow Their Lead?"},"content":{"rendered":"
\n

It seems only logical that trades by a company\u2019s executives would provide a clue to that company\u2019s outlook.<\/p>\n

But if you need academic studies to prove it, there are plenty. The seminal work was done 23 years ago by Nejat Seyhun, a professor of finance at the University of Michigan. His conclusion\u2013that insiders beat the market averages when they trade\u2014has been confirmed my numerous studies since then.<\/p>\n

That\u2019s why, four times a year, I devote this column to insider buys and sells that look significant to me.<\/p>\n

Here are two companies with recent insider buys, and one with a sell.<\/p>\n

Forward Air<\/h2>\n

At Forward Air (FWRD), a slew of insiders purchased shares in August. One of them was Thomas Schmitt, the CEO. Schmitt bought 16,050 shares in mid-August, spending just over $1 million. He now owns about $5 million worth of the shares in all. In addition to Schmitt, nine directors and three other executives bought shares.<\/p>\n

The insider buys followed a 25% drop in the stock on August 11, when Wall Street analysts took a dim view of the company\u2019s acquisition of Omni Logistics. The price was $3.2 billion, and Forward Air\u2019s revenue in 2022 was just under $2 billion.<\/p>\n

<\/fbs-ad><\/p>\n

Since the demonstration of faith by insiders, the stock has recovered modestly. It is trading at just under $70 a share, compared to more than $100 a share for most of this year preceding the hefty acquisition.<\/p>\n

Forward Air, based in Greeneville, Tennessee, is a logistics company that strives to be \u201casset light.\u201d That means that it doesn\u2019t own most of the planes and trucks it uses for deliveries, but rather leases them or uses subcontractors.<\/p>\n

The company has been profitable in each of the past 15 years, with the profit level varying from just okay to extremely good. Return on stockholders\u2019 equity has been in my preferred zone\u2013 above 15%\u2014 in nine of those 15 years.<\/p>\n

The stock sells for 12 times earnings, which I consider an alluring valuation.<\/p>\n

Fox
\n FOXA
\n <\/fbs-ticker><\/p>\n

At Fox, famous as the bastion of conservative and Republican causes, CEO Lachlan Murdoch paid $4.7 million to buy 141,367 shares of Fox stock, which he sold the same day to the Murdoch family trust.<\/p>\n

The family trust owns 39.6% of Fox Corp. It also owns most of News Corp., which in turn the Wall Street Journal<\/em>, New York Post<\/em>, and the Sun <\/em>in Britain. Analysts peg the trust\u2019s value at about $17 billion.<\/p>\n

Media czar Rupert Murdoch is the family patriarch, and owns 40% of the trust. Lachlan is Rupert\u2019s son, one of six children from three marriages. He owns 10% of the family trust, and directly owns about $27 million of Fox stock.<\/p>\n

Although I disagree with Fox\u2019s ideology, I like the stock\u2019s valuations\u201414 times earnings, 1.1 times revenue and 1.5 times book value (corporate net worth per share).<\/p>\n

Datadog, based in New York City, describes itself as \u201ca cloud-native company that focuses on analyzing machine data.\u201d Obviously, that\u2019s a sexy niche.<\/p>\n

Insiders frequently sell shares here. Presumably, their cups are refilled by options grants. What caught my eye is that selling volume in August was the highest since November 2021.<\/p>\n

Nine insiders sold shares on September 5, and all of them retained far more shares than they sold. The executives lightening up included Amit Agarwal, president, Adam Blitzer, chief operating officer, and Alexis Le-quoc, chief technology officer.<\/p>\n

The stock, by my lights, is expensive. It trades at 60 times earnings, 16 times revenue and 19 times book value.<\/p>\n

Performance Record<\/h2>\n

This is the 67th<\/sup> column I\u2019ve written about trades by corporate executives in their own companies\u2019 stock. I\u2019m able to tabulate 12-month performance for 57 of them\u2013all through from February 1999 through a year ago.<\/p>\n

Stocks with insider buys that I recommended have beaten the Standard & Poor\u2019s 500 Total Return Index by 1.23 percentage points in 12 months, on average. Stocks with insider buys that I said to avoid have underperformed the index by 24.88 percentage points.<\/p>\n

Stocks where I noted buying but made no comment, or an ambiguous comment, have beaten the index by 12.22 percentage points.<\/p>\n

Stocks where I noted executives\u2019 selling have underperformed by 1.37 percent points.<\/p>\n

A year ago, I recommended Intel<\/strong>
\n INTC
\n <\/fbs-ticker>, which advanced 24.5%, and Fox Corp., which declined 9.1%.<\/p>\n

Bear in mind that my column results are hypothetical and shouldn\u2019t be confused with results I obtain for clients. Also, past performance doesn\u2019t predict the future.<\/p>\n

Disclosure: I own Intel shares personally and for some of my clients. I own Intel call options in a hedge fund I manage. <\/em><\/p>\n

John Dorfman is chairman of Dorfman Value Investments LLC in Boston, Massachusetts. He or his clients may own or trade securities discussed in this column. He can be reached at <\/em>jdorfman@dorfmanvalue.com<\/em>. <\/em><\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

It seems only logical that trades by a company\u2019s executives would provide a clue to that company\u2019s outlook. But if you need academic studies to prove it, there are plenty. The seminal work was done 23 years ago by Nejat Seyhun, a professor of finance at the University of Michigan. His conclusion\u2013that insiders beat the […]<\/p>\n","protected":false},"author":1,"featured_media":10289,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"content-type":"","footnotes":""},"categories":[32],"tags":[],"class_list":{"0":"post-10288","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-investing"},"yoast_head":"\nExecutives Bought Shares At Forward Air And Fox, Should You Follow Their Lead? | Prosfunds<\/title>\n<meta name=\"description\" content=\"It seems only logical that trades by a company\u2019s executives would provide a clue to that company\u2019s outlook. 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