#WisdomWednesday No.4 and The Best Stocks With Large Insider Buying
We love skin in the game
It’s #WisdomWednesday here at Make Money, Make Time!
In this article we’ll take a deep dive into why skin in the game is such a simple, yet effective way to outperform the market. I’ll also provide you with a quality stock that has had a lot of recent insider buying…
1 Key Investing Lesson
I love to own stocks where management has what we call skin in the game, particularly the CEO, CFO, or any other directors.
Multiple academic studies have confirmed that companies with insider buying outperform the market (a Harvard Business School study studied that insider owned stocks beat the market by 6%).
Here’s another one for you:
Insiders have more information on the company. Insiders have an incentive to increase shareholder value if they have a significant ownership of the company.
And at the end of the day, if insiders don’t own the stock, then why should you?
“It’s hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong.” - Thomas Sowell
1 Investment Idea
Since this article is centered around insider ownership, I filtered many stocks depending on insider buys over the last 2 weeks.
However, I then performed my normal analysis of a company after to make sure I only include quality companies.
8 of the best quality stocks with insider buying over the last 2 weeks include:
Trimble ( TRMB 0.00%↑ )
Cricut ( CRCT 0.00%↑ )
Bristol-Myers Squibb ( BMY 0.00%↑ )
Ranger Energy Services ( RNGR 0.00%↑ )
STAAR Surgical Company ( STAA 0.00%↑ )
Ford Motor Company ( F 0.00%↑ )
Union Pacific Corporation ( UNP 0.00%↑ )
Chart Industries ( GTLS 0.00%↑ )
As you know, I like to include a one-pager, and a small dive into the stocks I analyze on #WisdomWednesday so I had to choose 1 of the above 8 stocks that I believe to be the best.
Bristol Myers Squibb
See the one-pager below.
Bristol Mysers Squibb is on the riskier end of investments that I would consider making, so if you’re risk averse I don’t advise this investment, even though it is a quality company with strong financials.
The main risk factor that Bristol Myers Squibb is currently facing is the expiration of some important patents, such as those for Revlimid (which make up around 20% of current revenue).
To counteract these risks, Bristol Myers Squibb have invested heavily into some acquisitions, such as those of Mirati Therapeutics.
Mirati is an oncology company that Bristol Myers believes to be a “strong fit” for its portfolio, and for diversifying and expanding its line of drugs.
A key asset is the lung cancer drug Krazati, which has been granted accelerated FDA approval to treat lung cancer patients with a particular mutation.
This alone could generate annual sales of $1.4 billion by 2032.
However, pharma companies are generally riskier investments due to the long process of FDA approval.
It is clear though that Bristol Myers Squibb are being proactive by actively searching for acquisitions to counteract the risks faced by the expiration of the patents over the next decade.
Financials
Gross margin of 77% and net margin of 18%
FCF margin of 26%
ROIC 10%, and ROE 18.9%
Revenue growth has averaged 19% over the last 5 years. Last year did see a drop to -0.5% though.
Free cash flow of $11.9M compared to $7.3M in 2019.
Falling debt
Is it a buy?
Financially, the company is strong, but there is of course the risks of the patent expirations having a further effect on revenue growth.
In my opinion, the risks are arguably already priced in and there’s no doubt that the company is trading at a bargain, especially compared to other healthcare stocks.
The CEO, Chris Boerner, potentially also agrees as he has been buying stock heavily this week.
With plenty of resources to grow further, I believe this is a worthy investment, though I do agree it does not fit all criteria that I normally look for.
Nevertheless, I will be starting to build a small position in Bristol Myers Squibb by investing small amounts on a bi-weekly basis.
I don’t feel comfortably investing heavier just yet until I see some a more stable price and some potential signs of upside.
1 Graphic
The idea of Mr. Market, introduced by Benjamin Graham describes this concept best.
Sometimes the market drops more than it should drop due to human emotions. This is one of the reasons why I do believe Bristol Myers Squibb is undervalued currently.
1 in Depth Twitter (X) Thread
A bigger picture thread today that looks at 10 legendary investors and the lessons I have learnt from every one of them.
1 Quote
“I like it when directors and executives of a company have significant holdings in their own company. Indeed, I’m delighted when they go out and buy even more shares at market prices. We’re more likely to make money when the people in charge of a business have significant personal money invested in it.” - Buffett
That’s it for the day
I hope you loved this article. As I develop on here, I’m sure there will be some changes to my structure and style, so please do leave some feedback for me.
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About the author
Make Money, Make Time is written by Oliver, a qualified CA, and investor who has read over 300 investment books, and spends more than 50 hours per week researching stocks so that you don’t have to. Let’s level-up together!