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My readers know I spend a lot of time looking at what corporate insiders are buying and selling. The reason for that is simple - I've made good money following these trends. Insiders tend not to buy stock unless they're certain they're going to see high rates of return, and when they sell, it's usually for a good reason.
Right now, the outlook is extremely bearish for insider transactions. Not only are there more individual sellers than buyers, but the dollar volumes on the sell side dwarf the buying volumes. And that's despite the fact that prices across the board are hitting 52-week lows.
Last week we continued to see seven-figure sales by insiders at high-growth darlings like Service Now, Palo Alto Networks, AirBNB, and Arista Networks.
Insiders at these former favorites know what I have been saying for some time now. The higher interest rates climb, the less the shares of these high-hope stocks are worth. It's Corporate Finance 101. The higher the interest rate used in the model, the lower the valuation.
But there is one area currently seeing positive insider activity, and it's an industry group where I have a very strong contrarian bullish tilt - real estate.
While higher rates have slowed down home sales and mortgage applications in the short run, we will see activity pick back up longer term. We are short millions of homes to meet demand right now, and much of that is in the lower end of the markets.
Insiders know that the housing market is heading for a comeback, and they're getting ready now, buying up companies that are going to skyrocket as the supply of homes catches up.
It's a good time for us to join them. Let me show you some of my favorites...
Insiders Are Scooping Up These Firms
Rocket Companies Inc (NYSE: RKT) pulled off an IPO in the summer of 2020, one of the few companies to successfully do so. The timing was just magical - with home buying exploding, work from home became work from anywhere, and mortgage rates were at historic lows.
The market was far more crowded and competitive than I think IPO buyers expected, and the stock has not lived up to the hopes, dreams, and expectations many investors had for the company.
Now with rates rising and demand at a lull, I suspect the business will become far less competitive. Executives at Rocket, especially CEO Jay Farner, share my optimism for the single-family mortgage business. Other executives have also been buying shares in the open market, but Mr. Farner is buying hundreds of thousands of dollars' worth of stock every week and has been doing so for several months.
Executives at Douglas Elliman Inc (NYSE: DOUG), a high-end real estate broker, are also very enthusiastic about their company's prospects. The CFO, Chief Operating Officer, and several directors have been enthusiastically buying the stock as it has declined.
Douglas Elliman services the super high-end luxury segment of the market. These are the folks who write multimillion checks for homes in New York, Palm Beach, Austin, Texas, and Beverly Hills, California. Most of these buyers are pretty well insulated from mundane things like mortgage rates and possible recessions, so this stock represents an island of stability in an otherwise chaotic market.
The stock is trading at around $5.40 as of this writing, a single-digit earnings multiple and just $.30 on the dollar of sales at this price. With a 3.7% dividend yield, investors can enjoy some cash on the side while waiting for it to climb back to its 52-week highs up around $12.
Next, CFO Marco Fregenal of Fathom Holdings Inc (NASDAQ: FTHM) has recently purchased hundreds of thousands of dollars of stock in the real estate brokerage firm he helps manage. Based in Cary, North Carolina, Fathom operates a real estate services platform that integrates residential brokerage, mortgage, title, and insurance services and supporting software called IntelliAgent.
Fathom operates in the South, Atlantic, Southwest, and Western parts of the United States.
Founded in 2010, Fathom has seen growth accelerate over the past few years. They are now the 6th largest independent brokerage in the U.S., according to Real Trends 500.
In addition to the CFO, Fathom itself has been a voracious buyer of its own shares. Through the end of May of this year, the company has repurchased 310,114 shares for about $2.9 million. They still have more than $7 million left on the buyback authorization.
Finally, one of the largest shareholders at Re/Max Holdings Inc (NYSE: RMAX), the huge nation brokerage firm, has been aggressively adding to his firm's position in the stock.
In just the last month, Alex Peterson of Magnolia Group has added more than 120,000 shares to their position.
They now own 10.2% of Re/Max.
The reasoning behind this move is pretty simple - volume. Freddie Mac says the backlog for housing demand is about 3.5 million homes. The National Association of Realtors puts that figure at closer to 5 million.
Over the next several years, lots of mortgages will be taken out, and billions will be paid in real estate commissions. Re/Max is still making profits, even though they're down from last year, and the upcoming buying surge is going to ensure they beat projections. The stock price will respond accordingly, and investors will go on a nice ride as it climbs.
The shift in insider buying to industries like real estate, which tend to perform well during recessions, cements a reality we need to accept - "the new normal" is already here.
In this new world order, anyone who doesn't have $1 million in their retirement account is going to be left holding the bag.
Investors need to be looking for strategies to help them get through these crises with their wealth intact.
That's why my colleague, Shah Gilani, and I have developed a survival strategy that will not only get you through the crush of inflation and supply chain chaos, but also has the potential to quadruple your money over the next five years.
About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of Peak Yield Investor.