It seems so obvious now.
The investing world recently witnessed a Broadway-like performance. In retrospect, it seems like a director choreographed it. And we all had access to the script months ago.
This event highlighted two investing concepts that are important to us as investors.
I am referring to insider and institutional buying.
Insiders are officers, directors and large holders (10% or more) of a company’s stock. Institutions manage at least $100 million of assets.
The Securities and Exchange Commission requires both groups to file reports detailing their trading activity.
Sometimes you may hear stories about this. Read on to learn why you want to pay attention when you do.
It’s Important to Watch the Big Money…
In May, famous investor Carl Icahn reached a deal to buy shares of Permian Basin oil firm Energen Corp. (NYSE: EGN).
The Permian is big. In April — the month before Icahn’s deal — 22% of the rigs drilling in the world were drilling there.
Icahn wasn’t the only one interested in Energen. He joined serially successful hedge fund Corvex Management as a big stakeholder.
Icahn bought 2 million shares from Corvex for $65 each. (And has the right to buy another 2 million in the future for $67.37 each.)
Corvex had been pushing for the company to sell itself. Now Icahn was on board to help with those efforts.
…And Company Insiders
If you missed that news in May, there was another chance to learn of the big-money interest in Energen.
Over the past month, it was one of the stocks with the most insider buying:
(Source: Bloomberg)
As you can see above, insiders bought more than $150 million of shares. It may not surprise you to learn Carl Icahn was responsible for all of that.
He reported his position as an insider out of an abundance of caution. Since the collective position of Icahn and Corvex in Energen was more than 10%, Icahn filed reports of his buys.
Icahn has been doing even more buying than what the above table shows. Since June, Icahn-controlled firms bought nearly 4.7 million shares for more than $300 million.
It Seems So Obvious Now
On August 14, fellow energy producer Diamondback Energy Inc. (Nasdaq: FANG) announced it will acquire Energen for almost $85 per share.
The buyout will create the largest independent energy firm in the Permian Basin. That’s saying something. This is the largest oil-producing region in the country.
And Icahn will make more than $100 million.
It seems so obvious now.
Icahn joined Corvex in May to help push the company to reach this outcome. Sometimes things work out.
The insider and institutional “hints” we saw over the past couple months show how we can benefit from these types of events. As an investor, I encourage you to learn from this.
Watch for setups like these. As I’ve shown, they can be quite lucrative.
And I assure you it will happen again.
Good investing,
Brian Christopher
Senior Analyst, Banyan Hill Publishing