Weekly Insider Trading, February 11

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Includes: BCO, OCN, PBH
by: G-Stock
Summary

Three solid insider transaction setups following the nine worst days from an ATH since 1928.

Ocwen - Cooperman provides a new strong hand.

Prestige Brands - Turnaround in insider activity.

Brink's - Super solid insider activity.

In general, a positive outlook for the market the following week.

Weekly Introduction - Market Commentary

Following the nine worst days from an ATH since 1928 (-10% top to bottom in the major averages, one would expect some insider trading activity to have picked up - and it has!). I believe it is during circumstances like this that we see some of the strongest signaling values of insider activity. I have mentioned this before, but it is crucial to place an activity in perspective of the current phase of a company, historical behavior and many other factors that are market cycle dependent. One famous example in recent years for the major averages was Jamie Dimon's purchases in 2016, when he added 26 MUSD worth of stocks just around the bottom, or rather perhaps contributed to create a bottom for the major averages.

The declines in the major averages over the last nine days can partly be attributed to what has happened in the volatility space. If you have followed my earlier articles, you know that I have some experience in volatility trading and especially volatility target strategies. These are now, together with risk parity strategies, blamed for the declines, at least for the velocity of the declines, which are mostly unprecedented if you look at it in relation to the business cycle environment.

I happen to agree with this view, and while it is unfortunate with these declines, I believe since most of it is technically driven - i.e. it is rule based strategies forced to sell - it also creates great opportunities for a value-based investor or even a mostly multi-strategy/technical investor like me who have engineered these strategies into structured products and understand both the strengths and weaknesses of the strategies. I exited that industry some years back and apparently underestimated how popular these strategies have now become. Actually, now as volatility is decreasing, these strategies will be forced to leverage up again. These strategies' behavior should be adding to market volatility (even if net market volatility is declining) over the next 1-2 months as they and the market try to find balance again. To summarize, I have a very positive view of the coming week.

Article explaining volatility targeting: Risk Control #1 - Seeking Alpha By Targeting Volatility

Introduction to Weekly Insider Trading (For New Readers)

Weekly insider trading from G-Stock is the result of quantitative screening of insider trading coupled with qualitative checks to produce a list of companies with the most interesting cues. The screening process starts by looking at the number and value of insider trades, if spread across insiders, their historic behavior and the value of current trade in comparison to existing shares owned. This produces a list of the most interesting companies to look at. The next step is to filter based on type of trades and the person trading. Purchases in a new issuance of stock or exercise of options are generally considered lesser value than an open market purchase. Generally, the more spread across insiders, the better should be the signaling value. Within the insider category, officers and directors are ranked higher than >10% owners. That said, nothing is binary and continuous purchases of a >10% owner can be very supportive for price. So to summarize, simply looking at transaction values is not enough. Most of the time, insider transactions need to be put in context, quantitatively and qualitatively, only then can such transactions will be of value for portfolio decisions.

Please note that the companies presented and information given should not be interpreted as a full picture view, or some fundamental analysis of the company. I am merely identifying insider trading patterns and looking at some basic info related to those companies to better score the value of such insider transactions. I strongly encourage everyone to do their own fundamental analysis of each company before investing.

This Week's Insider Trading Stocks

I have looked at the SEC reported insider transactions over the last week (report date). The final list includes companies based on the insider activity rank, which might or might not lead to an immediate action.

Company

Ticker

Insider activity in week

Overall Insider score

Company Fundamentals

Chart Technicals

Conclusion (Buy/No Action)

Ocwen

OCN

+

+

0

+

Buy

Prestige Brands Holdings

PBH

+

+

0

0

Buy avg

The Brink's Company

BCO

+

+

+

+

Buy

Ocwen

Summary

Several recent purchases from hedge fund manager Leon Cooperman (holds total 12% of market cap) and in earlier 2017 from John Devaney (holds total 10% of market cap), a total of approximately 30% of float held by institutional long-term investors, and decreased pressure from covered calls selling make this a bullish case.

Basic Company Info

Ocwen Financial Corp. is a financial services holding company, which through its subsidiaries engages in the servicing and origination of mortgage loans. It operates through the following segments: Servicing, Lending, and Corporate Items & Other. The Servicing segment engages in residential servicing business, which offers residential and commercial mortgage loan servicing, special servicing, and asset management services. The Lending segment involves in originating and purchasing conventional and government-insured residential forward and reverse mortgage loans mainly through correspondent lending arrangements, broker relationships, and directly with mortgage customers.

Industry

Savings & Loans

Market cap

427 M

Employees

9700

P/S

0.33

Founded

1988

P/E

-

Website

Link

P/CF

3.37

Source

Insider Trading

Last 12 M show inaccurate net transactions from Devaney; he now holds approx. 13m shares.

Name

Insider Type

Trade date

Purchase/Sale

Price

Value

Own. Chg

Cooperman Leon G

10%

2/2/2018

P - Purchase

3.17

$4,836,471

7%

Cooperman Leon G

10%

1/22/2018

P - Purchase

3.16

$1,561,489

4%

Devaney John

10%

4/20/2017

P - Purchase

2.66

$11,447,700

53%

Devaney John

10%

4/20/2017

S - Sale

2.54

-$16,806,281

-35%

Devaney John

10%

4/20/2017

P - Purchase

2.66

$11,447,700

53%

Devaney John

10%

4/20/2017

S - Sale

2.54

-$16,806,281

-35%

Chart and Technicals

OCN has been in a long-term declining price trend. There is a technical explanation to this, as explained in this excellent SA article from two days ago ("Ocwen: Continued Battle of Big Money Investors"). Bill Erbey, the founder of OCN, has apparently been a perpetual seller of covered calls on his prior position of 17m shares every year since he left in 2014 (which coincides with the top in the shares). This has created a technical selling pressure as the call writer hedges by selling shares in the market. Apparently he still has a significant ownership, but the pressure should decrease going forward, especially with Cooperman to potentially pick up what is thrown out there by Erbey.

It looks like the stock is building momentum from these low RSI levels seen for the majority of previous five years. As long as we stay above 3, I think we are heading much higher, and 5 seems to be within close reach.

Fundamentals

I will refer to the SA article mentioned above for a look at the fundamentals. It is worth cautioning that revenues have been in decline for many years, and the company has a troubled history ("Ocwen Chairman Erbey resigns as company admits misconduct"). As mentioned in the introduction, fundamental analysis will never be the strong point of my articles, and it is very logical that it isn't! The decision to buy (or sell) is often times driven by underlying factors not yet seen in traditionally used fundamentals, but taken based on the confidence demonstrated by insiders. That said, these turnaround or event driven cases carry a higher risk than the average company in the market. A good example of this is IO that I covered in a recent weekly article. It showed solid strength based on insider purchases and the chart technicals. But another article looking mostly at the company's fundamentals made me cautious to invest and I missed out on a +50% upside.

Seeking Alpha and other references

Prestige Brands Holdings

Summary

Contrasting four years of direct market sales and option exercise sales (compensation) and not one single purchase, three directors and the CEO have made purchases during the last week on heavily increased volume for the shares, indicating other insiders or large owners also might have stepped up to the plate.

Basic company Info

Prestige Brands Holdings, Inc. engages in the marketing, sale, and distribution of pharmaceutical drugs and consumer products. It operates through the following segments: North American Over-the-Counter, International OTC Healthcare, and Household Cleaning. The North American OTC Healthcare segment manages the following brands: Chloraseptic for sore throat remedies; Clear Eyes for eye redness relief; Compound W and Wartner for wart removal; Dramamine for motion sickness; Efferdent for dentures cleanser and adhesive; Little Remedies for pediatric healthcare, Luden's for sore throat relief; PediaCare for cough, cold and allergy; The Doctor's for good oral hygiene; BC/Goody's for pain reliever; Beano for gas prevention, Debrox and Murine for ear wax removal; Gaviscon for stomach problems; DermoPlast for pain relief sprays; New-Skin for liquid bandages; Fiber Choice for fiber laxative supplements; Fess for nasal saline spray; and Ecotrin as aspirin. The Household Cleaning segment comprises of the following brands: Spic and Span consists of dilutables for counter tops and glass cleaners; Chore Boy as scrubbing pads and sponges; and Comet that includes cleaning powders, spray and cream.

Industry

Healthcare

Market cap

1,790 M

Employees

530

P/S

1.74

Founded

1996

P/E

4.6

Website

Link

P/CF

14.6

Source

Insider Trading

Name

Insider Type

Trade date

Purchase/Sale

Price

Value

Own. Chg

Ricciardi Natale S

Dir

2/7/2018

P - Purchase

37.04

$111,120

62%

Jenness James M

Dir

2/5/2018

P - Purchase

35.47

$148,974

61%

Lombardi Ronald M.

CEO

2/5/2018

P - Purchase

35.94

$251,580

5%

Costley Gary E

Dir

2/5/2018

P - Purchase

35.47

$266,025

24%

Boyko Jean A

SVP, Science, Technology

8/9/2017

S - Sale+OE

52.12

-$671,097

-48%

Parkinson John

SVP - International

6/8/2016

S - Sale+OE

53.57

-$1,346,911

-28%

Byom John E

Dir

6/8/2016

S - Sale

53.35

-$66,634

-4%

Cowley Samuel C

GC, VP

5/27/2016

S - Sale+OE

54.67

-$1,782,187

-50%

Migaki Paul

See Remarks

5/27/2016

S - Sale+OE

54.51

-$1,465,065

-32%

Boyko Jean A

SVP, Science, Technology

5/31/2016

S - Sale

53.78

-$188,230

-21%

Parkinson John

SVP - International

6/15/2015

S - Sale

44.99

-$751,108

-21%

Parkinson John

SVP - International

6/10/2015

S - Sale+OE

44.29

-$403,216

-10%

Mannelly Matthew

Pres, CEO

5/29/2015

S - Sale+OE

44.16

-$868,714

-42%

Boyko Jean A

SVP, Science, Technology

5/21/2015

S - Sale

43.12

-$542,579

-45%

Mannelly Matthew

Pres, CEO

5/19/2015

S - Sale+OE

43.3

-$4,881,073

-80%

Cowley Samuel C

GC, VP

5/19/2015

S - Sale+OE

43.42

-$542,533

-28%

Connors Timothy

EVP, Sales, Marketing

5/19/2015

S - Sale+OE

43.11

-$3,174,965

-45%

Chart and technicals

Although the price action does not look very appealing, volume has been increasing, which if it is combined with insider purchases could be interpreted positively. It is a falling knife though and should be treated as such. I would prefer to see a bottoming process before engaging strongly, so I will follow a dollar cost averaging strategy to enter.

Fundamentals

Brands and margins can be seen below:

Seeking Alpha and other references:

SA Article: Prestige Brands - Looking Pricey And Risky As Roll-Ups Have Gone Out Of Favor

Brink's

Summary

Continued purchases from insiders (officers) over the last years, combined with an improving business outlook and some key initiatives to improve operating margins, make this an excellent case of solid stake in the game and a plan to deliver. The main headwind I would point out is the obvious transition from cash to digital, which is not really showing up in company fundamentals yet, especially since growth in Latin America is strong. While the valuation is on the slightly high side, the improving fundamentals and insider buys should at least mean a safe "buy the dip" scenario.

Basic company Info

The Brink's Co. provides secure transportation and cash management services. Its logistics and security solutions include cash-in-transit, ATM replenishment & maintenance, and cash management & payment services, such as vault outsourcing, money processing, intelligent safe services, and international transportation of valuables. Brink's customers include financial institutions, retailers, government agencies, mints and jewelers. The company was founded by Perry Brink and Fidelia Brink on May 5, 1859, and is headquartered in Richmond, VA.

Industry

Security & Protection Services

Market cap

3830 M

Employees

60,700

P/S

1.14

Founded

1859

P/E

245

Website

Link

P/CF

19.3

Source

Insider Trading

Only insider transactions from May 2017 are shown below. Looking back since 2014, there have been continuous purchases by CEO Douglas Pertz, and CFO Ronald James Domanico.

Name

Insider Type

Trade date

Purchase/Sale

Price

Value

Own. Chg

Domanico Ronald James

EVP, CFO

2/8/2018

P - Purchase

72.18

$252,630

9%

Pertz Douglas A

Pres, CEO

2/8/2018

P - Purchase

72.91

$729,100

6%

Stoeckert George I

Dir

12/8/2017

P - Purchase

80.55

$217,492

25%

Domanico Ronald James

EVP, CFO

11/1/2017

P - Purchase

76.85

$230,550

9%

Pertz Douglas A

Pres, CEO

11/2/2017

P - Purchase

76.18

$500,503

4%

Pertz Douglas A

Pres, CEO

10/30/2017

P - Purchase

77

$100,100

1%

Feld Peter A

Dir

9/11/2017

S - Sale+OE

80.83

-$2,182,340

-2%

Feld Peter A

Dir

8/24/2017

S - Sale+OE

75.81

-$4,548,579

-4%

Feld Peter A

Dir

8/21/2017

S - Sale+OE

75.72

-$5,679,303

-5%

Feld Peter A

Dir

8/14/2017

S - Sale+OE

76.47

-$6,105,630

-5%

Marshall McAlister C II

SVP, GC, CAO

8/3/2017

S - Sale

76.96

-$1,038,941

-17%

Feld Peter A

Dir

7/31/2017

S - Sale+OE

78.1

-$14,505,814

-11%

Feld Peter A

Dir

6/8/2017

S - Sale+OE

65.17

-$30,954,403

-22%

Feld Peter A

Dir

5/31/2017

S - Sale+OE

63.27

-$25,309,711

-15%

Herling Michael J

Dir

5/15/2017

S - Sale

61.06

-$122,120

-40%

Pertz Douglas A

Pres, CEO

5/12/2017

P - Purchase

61

$585,630

6%

Colan Thomas

Controller

5/9/2017

S - Sale

62.3

-$58,251

-12%

Chart and technicals

Shares are in a clear uptrend since bottoming in 2015, and the continuous insider purchases, improving fundamentals and outlook should provide support in the current consolidation. Buying!

Fundamentals

Q4 slides point to very positive outlook on growth and profits. They point to several key initiatives that will improve operating margin.

Seeking Alpha and other references

SA Article: The Brink: Leverage Out Of Thin Air

This article gives a good fundamental run through and explains how the companies can grow revenue in a flat market with structural headwinds and create leverage "out of thin air."

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in ALL TICKERS over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.