Quiver Quantitative - In Q3 of this year we collected a total of 18,958 unique insider purchases across give or take 2,400 publicly traded U.S. firms. In today's piece, we will focus our discussion and analysis exclusively on those companies which fall into the large-cap category, but the recurring series will be followed up with a third-quarter installment covering small-caps and mid-caps.
For the purposes of this article, we defined large-cap companies as publicly listed firms with market caps larger than $10 billion.
Below is our list of research-worthy large-caps that, in our view, enjoyed a period of unusual and atypical interest from corporate insiders during the third quarter of the year and are worthy of further research.
Exxon Mobil (NYSE:XOM):
-Active Corporate Insiders: 1 -YTD Performance: -0.25% -Total Bought Back: $69,409,630 -Average Purchase Price: $106
This is being written on the day of the natural gas giant's Q3 earnings report, so fitting that it also be somewhat of the highlight of our quarterly large-cap insider coverage. While not an entirely diversified insider buying effort, just director Jeffrey Ubben, amongst the large-cap stocks we looked at this quarter, XOM saw significantly more volume than anything else. The next closest was Energy Transfer LP (ET) where insiders bought around $25 million in stock this quarter. Mr. Ubben bought a total of 65,000 shares over a two-day span from July 31st to August 1st during which XOM traded in the $105-107 range.
As for the company's most recent earnings in addition to its overall fundamentals there's probably more to discuss than can fit into the scope of this article. The company made headlines just several weeks ago when it announced it would buy Pioneer Natural Resources (NYSE:PXD) for around $60 billion, making it the largest shale producer in the Permian Basin. Q3 earnings revealed profits fell 54% from a year ago, likely thanks to falling oil prices and demand, and EPS missed expectations by about 5% at $2.25. However net profits rose 15% QoQ and will result in an increased quarterly dividend for shareholders. The stock trades at an attractive P/E ratio of about 8x and a very nice debt to equity ratio of 0.75x. Following the report, XOM shares have slipped around 2% and now trade at $105.
Broadcom (NASDAQ:AVGO):
-Active Corporate Insiders: 2 -YTD Performance: 51% -Total Bought Back: $10,451,239 -Average Purchase Price: $865
We actually discussed the insider activity at AVGO once before relative to Q3 trading in a weekly insider activity report but considering the volume and the volatility in the tech sector, it made its way into the quarterly coverage. It was two directors, Check Kian Low and Harry You, that purchased shares in Q3. Low's purchase of 11,000 shares for an average of $872 per share came on September 6th and You's purchase of 1,000 shares for an average of $859 per share came on September 15th.
You might recall during that time there had been reports that Google (GOOG)(NASDAQ:GOOGL) might drop AVGO as the primary chip-maker for their product line. Ultimately, not much if anything came after these reports and if the directors saw this as a buying opportunity they might have been a bit early considering the stock has fallen another 4 or so percent since their buying spree. Still AVGO is up 51% YTD and like we discussed in the weekly article, the fundamentals on the stock are very strong. The company last posted an EPS miss in Q1 of 2020 and has grown the measurement in nearly every consecutive quarter since.
In the first two quarters of this year EPS fell very slightly by about 1% as quarterly revenue also hit record highs and since plateaued as well. That said annual revenue will now have grown every year for a decade which shouldn't be understated. Current estimated 2023 revenue represents 2653% growth from 2013 revenue which was around $1.3 billion. The world's third largest chip-maker by market cap will announce its Q4 earnings in early December and currently trades around $880 per share.
The AES (AES):
-Active Corporate Insiders: 3 -YTD Performance: -47% -Total Bought Back: $1,240,288 -Average Purchase Price: $19
AES's primary business consists of the generation, distribution, and ultimately the selling of electricity or power generation. The company now operates in 15 countries and ranks amongst the Fortune 500 power companies. Interestingly, one of the most active insiders at AES, while not active this quarter, is Jeffrey Ubben. He bought 1 million shares of the firm between May and June of 2020, likely on behalf of his fund, ValueAct Capital.
This quarter it was the turn of three directors to load up on company stock despite the relatively dismal year shares are having so far. It wouldn't be fair to say that the energy sector has had a great year, but the second half of 2023 has been much kinder to the sector than the first. Unfortunately, AES has not shared the same fortune, slipping more than 50% YTD in early October and about 43% over the last year. Directors did their buying in early to mid-August just a few days after AES released its Q2 earnings reports after which shares fell about 15% in three or so weeks.
This can probably be attributed to the firm's first EPS miss since Q1 of 2022 and its first revenue miss since Q4 of 2020. That said, AES does have some attractive attributes like its cheap P/E ratio of about 8.8x and a 10-year high dividend of 4.8%. AES announced their Q3 earnings AH on November 2nd showing a slight beat in EPS of around $0.06 and a miss on revenue of around $130 million. Nonetheless, share prices spiked up about 8-9% and closed at $16.79 and have continued to trade in the $16 range since.
Zebra Technologies (ZBRA):
-Active Corporate Insiders: 4 -YTD Performance: -21% -Total Bought Back: $1,763,043 -Average Purchase Price: $245
Zebra operates as a computing company out of Lincolnshire, Illinois, a suburb of Chicago. They manufacture and sell a number of different hardware and software technologies to assist customers in tracking, analyzing, and managing their own products, workforces, and so on. It's estimated they serve around 80% of Fortune 500 companies. As for insider buying this quarter at the firm it was the first since Q2 of 2018 and came from the CEO, the Executive Chair, and two directors.
The CEO and directors each bought 1,000 shares all in the same trading week while the Chair bought 4,100 shares the week before. A quick glance at a 10Y chart for ZBRA sheds some light on why there may not have been much insider buying here in recent years. From 2019 to its peak in late 2021 the stock gained around 300% only to have lost 65% since then which probably hasn't been a welcoming sign for investors or insiders. Despite these the company's financials have remained relatively stable.
While share prices have dropped, they have still managed to lower their D/E ratio in all but three quarters since the beginning of 2019 and revenue has also grown at a solid pace in that same period. That is until this calendar year in which the company expects around a 10 to 20 percent decline in revenue. In their most recent earnings call on Halloween, the CEO revealed Q3 sales fell 30% and non-GAAP EPS fell 79% from a year ago in what could certainly be considered a bit of a red flag. Following the report shares slipped initially by some 6 to 7 percent but have since rallied about 10% although likely assisted by the general market rally over the last several trading days. Today shares can be purchased for around $206.
NextEra Energy (NYSE:NEE):
NextEra Energy is a stock we've covered before in insider related articles and as you can see from the chart below it's because insiders have been quite active there for the better part of two years. The last time we covered NEE was Q1 of this year when we tracked 7 active insiders buying shares including the CFO and EVP. It was two directors buying shares this time around in mid-August, several weeks after the company posted strong Q2 earnings. While share prices have not performed well over the last year or so, 1Y return is -23% and the YTD return is -29%, earnings have been strong and the company still offers a 3% yield. The main issue with NEE is that it's costly at a forward-looking P/E ratio of 19x and a debt load more than twice the company's equity.
Their levered free cash flow for the trailing 12 months is also close to negative $20 billion. On the flip side both EPS and sales have grown at impressive rates over the last several years but especially in the last year. Revenue is up close to 40% YoY and EPS in Q3 grew 10% from a year ago. Fundamentals and financials aside, 5 plus insiders at NEE have bought close to a combined $5 million in company stock just in 2023 and considering the stock's performance that sentiment is hard to ignore. The energy conglomerate now trades around $59 a share.
Final Takeaway:
If you remember from previous articles this year and last, oil and gas companies have made up a large part of our discussions and that seems to finally be dwindling down. What I noticed in particular writing this quarter's update was how well insiders are at nailing investors' reactions to earnings reports. A good number of the tickers mentioned above and some others that didn't make the cut for this article had either stellar earnings reports and then great investor response or just great investor response post earnings whether they were phenomenal or not.
What insiders obviously cannot control or as well predict is the greater macro-economic environment and that's likely why you see many of the insiders in this article still a bit underwater on their purchases.
This article was originally published on Quiver Quantitative