Well, that was an exciting week, wasn’t it? We saw the markets make record swings, both in absolute point measure and relative percentages, and both up and down, as investors shifted between panic selling and buying the dip. The week ended on an up note, with the S&P 500 gaining 9% after President Trump’s declaration of a national emergency as well as Federal initiatives to combat the coronavirus and provide economic support. Markets found additional support from the Federal Reserve, which announced a $37 billion bond purchase to inject liquidity into the economy. Oil prices also stabilized on Friday, as part of Trump’s program includes increased purchases for the US strategic oil reserve.
President Trump’s policy statement was not the only good news. There are hints out of China that the epidemic may be peaking. Local and provincial government offices are starting to report greater numbers of recovered patients than new cases, and factories and offices are beginning to return to work. It is a sign that the end could be in sight, at least for the epidemic’s epicenter, and gives hope that the disease may be contained before inflicting irreversible economic damage.
Investors, of course, can do their own part. Markets may have crashed into bear territory last week, but with every fall in prices comes an opportunity – to buy in at a discount. Insiders – those corporate officers with both the responsibility for running their companies and for bringing returns to shareholders – have been snapping up shares in large quantities. They have made large purchases during the market crash, and while their stock buys did not boost the overall market, they may provide an important signal for investors. These buys signal confidence, in as strong a way as possible.
We’ve opened up TipRanks’ Insiders’ Hot Stocks tool, and pulled up three bargain-value buys that insiders have scooped up in recent days. These are stocks priced under $10, with over 60% upside potential, and a Buy rating. Here are the details.
Energy Transfer LP (ET)
We’ll start in the energy industry, which has been buffeted by the collapse of oil below $35 per barrel. That being said, it remains a vital industry: it is indispensable in the modern economy, and known for generating strong cash flows. Energy Transfer is a midstream company, controlling pipelines, terminals, and storage tanks for both petroleum and natural gas products, across 38 states. The company’s activities are centered in two regions: Texas-Oklahoma-Louisiana, and Midwest-Appalachia-Delaware.
Energy Transfer was on solid footing before the market gyrations began. The company showed year-over-year growth and beat expectations for both earnings and revenues in the Q4 2019 report. In addition, ET registered a 2% yearly increase in distributable cash flow, to $1.55 billion.
The strong cash flow underlies a strong dividend. ET pays out 30.5 cents quarterly, or $1.22 annualized, giving the stock a powerful dividend yield of 18.1%. Given the company’s 11-year history of keeping up the payments – and slowly growing them – this dividend is a strong incentive for potential buyers.
Turning to the insider activity, the sentiment here is strongly positive. In the last two days, two company directors and the COO have purchased almost $6 million worth of ET shares. Director Ray Davis made the largest single purchase, of $4.9 million, while another Director, Ray Washburne, bought in for $720,000 and COO Matthew Ramsey picked up a position worth more than $99,000. These three were the latest in a string of recent insider purchases, totaling more than $63.6 million.
Wall Street is impressed with Energy Transfer. Writing for Barclays, Christine Cho sees strength in the company’s model, saying, “The Midstream assets will likely be affected by poor NGL pricing throughout 2020, while the NGLs and Refined Products segment is expected to benefit from expanded pipe and fractionation capacity throughout 2020.”
Cho puts a Buy rating on ET along with a $20 price target, implying room for an impressive 197% upside. (To watch Cho’s track record, click here)
Also bullish is Evercore analyst Durgesh Chopra. He puts an $18 price target behind his Buy rating, showing confidence in a 167% upside growth potential. (To watch Chopra’s track record, click here)
In his comments on the stock, Chopra writes, “Energy Transfer posted a beat in the fourth quarter… The company announced a suite of agreements with an unidentified large customer which effectively extends the contract terms between the Company and Energy Transfer for various services provided in the Eagle Ford and Delaware Basins through 2034 and 2040.”
Energy Transfer shows a high upside potential of 128%, based on a $15.33 average price target and a current share price of $6.73. The stock holds a Strong Buy rating from the analyst consensus, based on 10 reviews, including 8 Buys and just 2 Holds. (See Energy Transfer stock analysis onTipRanks)
New York Mortgage Trust, Inc. (NYMT)
With our second stock, we move into the world of real estate investment trusts, or REITs. These companies acquire, manage, and lease a variety of real properties and/or mortgage-backed securities. Their income is derived from rental and mortgage payments, management fees, and earned interest. By law, they are required to return the lion’s share of profits to investors, and so typically show very high dividend yields. NYMT inhabits the mortgage-related asset and financial asset niche of the REIT industry. Its assets include high quality residential adjustable rate mortgage loans, commercial mortgages, and non-agency mortgage-backed securities.
NYMT is another company that reported a solid Q4 just as COVID-19 sent the markets haywire. Not to mention the company’s dividend yield comes in at 19.5%, with an annualized payment of 80 cents per share. This makes the payout ratio 106%, indicating that all company profits are paid out to investors. The dividend has been kept stable for the past three years.
With over $770,000 in recent insider purchases, it’s clear that corporate officers have a strongly positive sentiment toward their company. The most recent buys include a $30,000 purchase by CFO Kristine Rimando Nario, and a $235,000 purchase by company President Jason Serrano. The largest recent purchases, totaling more than $402,000 for 82,000 shares, were by CEO Steven Mumma. His holding in the company now exceeds 1 million shares.
Analyst Michael Diana, of Maxim Group, writes of NYMT, “In our view, NYMT deserves a premium valuation to the group due to its track record of preserving book value and producing strong returns (7-year average economic return of 13.3%) and to its focus on credit strategies in an environment which we regard as favorable for credit strategies.”
He gives the stock a Buy rating and a $7 price target, indicating room for a 66% upside potential. (To watch Diana’s track record, click here)
From Jones Trading, 5-star analyst Jason Stewart is also bullish. His $6.50 price target, implying a 54% upside potential to the stock, backs a Buy rating. (To watch Stewart’s track record, click here)
In his comments, Stewart laid out a case for the stock going forward: “We raise our 2020 EPS estimate after incorporating improved top line yields and lower funding costs. A quick start to the year on the capital raising front coupled with growth in the credit portfolio should continue to deliver attractive risk-adjusted returns.”
With 4 recent Buy-side reviews, NYMT has a unanimous Strong Buy analyst consensus rating. Shares are priced at a true discount level, just $4.22, but the average price target of $6.75 shows plenty of room for growth in the next 12 months – up to 60%. (See New York Mortgage Trust stock analysis on TipRanks)
Park Hotels & Resorts, Inc. (PK)
We’ll end our list today with another REIT. As its name suggests, Park Hotels focuses on hotel properties. The company has been independent since 2017, when it spun off from Hilton Worldwide. Park still has a strong connection to Hilton, as it owns Hilton properties in Orlando, Chicago, New Orleans, and Honolulu, along with a minority interest in Washington, DC’s Capital Hilton. The company has another 47 properties, and in fiscal 2019, showed $2.8 billion in revenues and $316 million in net profits.
Like the other stocks on this list, PK beat the earnings estimates in Q4, reporting the good news while the markets were starting their roller coaster. Funds from operations (FFO, an REIT equivalent to EPS) came in at 72 cents, compared to the 69-cent forecast, while revenues were $810 million, some 3.4% better than expected, and up 18% year-over-year.
The company’s dividend yield is strong – at 20.7%, it is far higher than the S&P average and blows away Treasury bonds. The $1.80 annualized dividend is paid out at 45 cents quarterly, and the company adjusts the payment to match earnings. The current payout ratio is 149%.
The insiders have been buying up shares, with purchases of $1.67 million in recent weeks. During the current market swings, Directors Thomas Natelli and Thomas Eckert bought $65,000 and $130,000 worth of shares, respectively. CEO Thomas Baltimore bought 78,000 shares for $977,000 at the same time.
Among the Wall Street analysts, the outlook is bullish. David Katz, of Jefferies, writes, “The prospective opportunities for PK to improve its portfolio and accelerate growth are clear amid a myriad of uncertainties, in our view. Incremental synergy opportunities are forthcoming, an improved customer mix should yield benefits, and a prudent capital recycling strategy should narrow the NAV dislocation over time. We believe evidence of execution should be the catalyst for value appreciation.”
Katz reiterates his Buy rating on the stock, but reduced the price target to $26. However, this still suggests an upside potential here of an impressive 179%. (To watch Katz’s track record, click here)
Richard Hightower, of Evercore ISI, also reviewed PK, and points out the obvious risk: “As with the other lodging companies within our coverage, we’re taking a ‘below the low end’ (of guidance) stance on estimates unless and until the coronavirus threat to travel recedes.” Even so, Hightower still sees plenty of potential, and gives the stock a price target of $26. (To watch Hightower’s track record, click here)
Park Hotels’ Moderate Buy analyst consensus rating is based on 7 reviews, including 5 on the Buy-side. The shares are currently selling for $9.31, and the average price target of $26.83 suggests an extraordinary upside potential of 188%. (See Park Hotels stock analysis on TipRanks)