“Be fearful when others are greedy, and greedy when others are fearful.”
Legendary investor Warren Buffett said that famous line.
And it has made him a lot of money over the years.
People are certainly fearful today. The S&P 500 Index is having its worst quarter since the last three months of 2008.
That makes this a solid time to create a list of potential buys.
We don’t have to buy until things calm down. But planning to do so makes a lot of sense.
When I’m considering which names to be greedy in, I want to reduce my risk as much as possible.
I’ve been investing for more than two decades now. Over the years, I have found a solid way to do so. You may want to consider a few of the ideas I’m seeing now for the next year…
Outsized Insider Buying
During tough times, I like to look to company insiders to create a shopping list.
For example, during the past week, we’ve seen outsized insider buying in four billion-dollar names. Take a look:
I like to use screens like this as a starting point for a potential 2019 trade.
When I look at this list, at least one name may be familiar to you.
I wrote an essay on sense-focused International Flavors & Fragrances Inc. (NYSE: IFF) in August. At the time, it was in the process of acquiring its peer called Frutarom. The deal closed in October.
IFF was seeing huge insider buying from a Singapore-based fund … and that interest continues.
Winder Investment now owns almost 18% of IFF’s stock.
And it’s not the only buyer.
Of the top 10 holders of IFF’s stock at the end of the second quarter, all but two increased or maintained their stake in the third quarter.
I suggest you watch this name when the market calms a bit.
The name with the most insider buying is W.R. Grace & Co. (NYSE: GRA).
It is a specialty chemical and materials producer. It helps customers from industries like refining, plastics and food improve their products and processes.
And it’s been doing that for more than a century.
The principals at 40 North Management embrace that history. You see, 40 North is a fund that invests in industrial businesses.
And it understands the importance of history. Standard Industries, 40 North’s parent, has been in business for more than a century, too.
That means 40 North is patient but willing to strike at the right time. It has deemed today is that right time.
Shares of W.R. Grace fell to the lower $60s at the beginning of December. And 40 North started backing up the truck.
Since December 6, it has bought more than 2.4 million shares of W.R. Grace. It now owns more than 13% of the outstanding shares.
Standard owns companies that make roofing and ventilation systems as well as construction materials. And it likes what it sees in W.R. Grace as well.
Lions Gate Entertainment Corp. (NYSE: LGF-A) creates entertainment content. Over the past five years, its films have grossed nearly $10 billion at the box office.
Its growth has slowed a bit recently, though. That has hindered its stock price.
But two of its directors aren’t having it. They have been buying the discounted shares.
Over the three-day stretch that ended December 21, the two directors bought nearly 855,000 Lions Gate shares.
They are buying when others are fearful.
Lions Gate shares peaked above $35 at the end of January. They’ve struggled since and are trading near $15 today.
The story isn’t perfect. Revenue has softened a bit. But not that much.
The company continues to generate positive EBITDA (earnings before interest, tax, depreciation and amortization) and free cash flow. It trades for about book value … for the first time since 2004.
There is value in content. And Lions Gate has it.
Carvana Co. (NYSE: CVNA) provides an online platform for buying used cars … without the dealership.
And people are embracing it. Sales have more than doubled in the past year.
I can’t tell you if this growth can continue. And it is spending more cash to do so.
But New York hedge fund Spruce House Investment Management likes what it sees at this price.
Spruce House just bought 630,000 shares last week. It now owns 14% of the company’s public shares.
Given that shares traded for more than $70 in September, today’s low-$30s price tag may be a steal.
In investing, it pays to be greedy when others are fearful.
Domestic and global angst continues to affect the market. At this rate, it looks like we will have many chances to put this logic into practice next year.
But if you do so, do it smart. In Jeff Yastine’s and my Insider Profit Trader service, we are plenty greedy. But we try to be greedy in a smart way.
Monitoring what insiders are doing is a great way to see what the “smart money” thinks about a given name.
I hope you all have a happy and rewarding new year.
Editor, Insider Profit Trader