When CEOs Buy Their Own Stock, Pay Attention

When chief executives buy their own companies’ shares, it’s often worth considering the stock.

Company insiders achieve better capital gains, on average, than the typical investor does. The effect is especially strong for chief executive officers (CEOs) and chief financial officers (CFOs).

Using Guru Focus software, I screened on December 3 for recent CEO purchases of $100,000 or more. I specified that the company should have a market value of $500 million or more, and debt less than stockholders’ equity. Also I required that the stock sell for 15 times earnings or less.

This screen came up with eight hits.

Avient

Avient Corp. (AVNT), based in Avon Lake, Ohio, sells chemicals and coloring agents to companies in the plastics industry. The stock has been fairly stagnant for a long time. CEO Robert Patterson bought $839,700 of shares in November, the first insider purchase here since 2020.

Black Stone Minerals
BSM

Black Stone Minerals LP is an oil and gas company based in Houston, Texas. It owns land and lets others drill on it, collecting royalties. It’s structured as a limited partnership, so if you buy the shares it will complicate your tax return.

CEO Thomas Carter Jr. spent just over $1 million to increase his shareholdings in November.

Dorchester Minerals

Another oil-and-gas partnership, similar to Black Stone, is Dorchester Minerals LP (DMLP), out of Dallas. Here, CEO Bradley Ehrman bought $124,820 of shares, and Chief financial officer Leslie Moriyama bought $225,330. This stock has more than doubled in the past three years, but is close to unchanged in the past year.

Emerson Electric
EMR

At Emerson Electric Co. , CEO Surendralal Lanca Karsanbhai bought $882,000 of stock in November. Based in St. Louis, Missouri, Emerson sells automation equipment, process controls and tools. It’s the largest stock in this group.

Emerson shares have posted only modest gains over the past decade, but profits have accelerated recently and analysts foresee more good times ahead.

Markel
MKL
Group

A specialty insurer that is big in professional-liability lines, Markel Group Inc. has its headquarters in Glen Allen, Virginia. Four insiders purchased shares in November – three directors and CEO Thomas Gayner, who paid $131,190.

Matador Resources

Matador Resources Co. (MTDR), a mid-sized company based in Dallas, is an oil and gas producer specializing in shale plays and fracking. The company is nicely profitable, but analysts don’t expect it to match its 2022 earnings this year or in the next couple of years.

CEO Joseph Foran spent $110,800 to pick up a few shares in November. The shares sell for only six times recent earnings, eight times projected earnings.

Merchants Bancorp

CEO Michael Dury spent about $255,000 to add to his holdings of Merchants Bancorp (BMIN) now valued at around $778,000. This is a regional bank with headquarters in Carmel, Indiana.

I like to see banks earn better than 1% on their assets, and Merchants has achieved this eight years in a row. The stock has tripled since its initial public offering in 2017.

Runway Growth

Runway Growth Finance Corp. (RWAY) lends money to companies it believes have high growth potential, often in the technology or life sciences industry. Publicly traded only since 2021, its profits have been consistent but unspectacular. CEO David Spreng made two purchases in November, totaling about $321,000.

All of these stocks look interesting to me. I particularly like Emerson Electric, Matador Resources and Merchants Bancorp.

The Record

This is the 68^th column I’ve written on insider purchases and sales. I can tabulate results for 58 columns, all those written from the beginning of 1999 through a year ago.

The stocks I’ve recommended based on insider buying have beaten the Standard & Poor’s 500 Total Return Index by an average of 1.1 percentage points per 12 months. Stocks where I’ve noted insider selling have trailed the index by 1.4 percentage points.

I’ve recommended avoiding some stocks even though they showed insider buying. Those have underperformed the market by 24.3 percentage points.

Finally (red face here) there were a few stocks where I noted insider buying but made no recommendation or an ambiguous comment. Those have beaten the index by 16 percentage points.

A year ago I recommended Align Technology
ALGN
Inc. (ALGN), which returned 17.3%, and Black Stone Minerals LP, which rose 9.7%. The index returned 16.8%.

Bear in mind that my column results are hypothetical and shouldn’t be confused with results I obtain for clients. Also, past performance doesn’t predict the future.

Disclosure: I own Merchants Bancorp in a hedge fun I run. My firm holds a professional liability insurance policy issued by Markel.