For the retail investor, making sense of the markets and finding the right investment is naturally the key to long-term profits. For many such investors, the strategy of choice is following the insiders.
While ‘insiders’ may have a bad sound, suggesting below-board dealing to score dishonest wins, it really means something much simpler, and fundamentally honest. Insiders are corporate officers, in positions of trust with their companies, and their offices give them access to information that ordinary investors haven’t got. It’s human nature for them to trade on that information; to keep a level playing field, the regulators require such insiders to frequently publish their stock trading activity.
That last makes it possible for quick-witted investors to trade like the insiders. By watching the insiders’ stock moves, retail investors can gain the benefit of the insiders’ knowledge – and trade accordingly.
With that in the background, we’ve made use of the TipRanks stock data tools to find stocks that show solid signs of informative buys from the insiders. These are two very different companies – but they both show strong upside potential for the coming year. Let’s take a closer look into the data and the analyst commentary.
Piedmont Lithium, Ltd. (PLL)
we'll open up our look at recent insider trades with Piedmont Lithium. Piedmont is an Australian company that recently re-domiciled to the US, in a move designed to put the company’s headquarters in the same country as the majority of its assets. Those assets are mines, based in a large production area of North Carolina and harboring an estimated 39.2 metric tons of lithium oxide in a 1.09% grade ore. Piedmont is developing the area in preparation for mining activities, with the goal of producing lithium hydroxide, a key ingredient in the production of lithium ion batteries.
Batteries, of course, are a massive industry in today’s world. Everything from the smartphone in your pocket to the laptop on your desk to the electric car or bike in your garage runs on batteries – and lithium ion batteries are the most common type. A company that can fill that need will build itself a solid foundation. And, in addition to the battery market, lithium hydroxide has applications in other fields; it is used in Portland cement, carbon dioxide scrubbing technology, and lubricating grease.
As part of Piedmont’s re-domiciling, the company put 1.75 million American Depositary Shares on the NASDAQ during the first quarter of the year. Each ADS represented 100 of its ordinary shares, and the offering brought in gross proceeds totaling $122.5 million.
In recent weeks, Piedmont has been expanding operations. On June 8, the company announced increased activity in production of mineral resources, including quartz, feldspar, and mica. Mining activity in these minerals targets a 40% increase in output. Later in June, Piedmont and its partner – Sayona Quebec, in which Piedmont owns a 25% stake – received approval from Quebec’s Superior Court to acquire North American Lithium. The acquisition will cost Piedmont C$23.5 million, in proportion to its share of Sayona. And finally, in the first week of July, Piedmont announced that it will acquire more than 9% of IronRidge Resources, and 50% interest in that company’s Ghana-based lithium production. The goal is to become the largest American producer of lithium hydroxide.
Turning to the insider moves, we see that the insider sentiment is positive. This is based on two recent informative buys, by board members Susan Jones and Jeffrey Armstrong. Jones purchased 4,000 shares of PLL, for $292,240, while Armstrong picked up 2,500 shares for $174,025. For Armstrong, the purchase added to his existing holdings, and his stake in the company now totals over $1.42 million.
Covering PLL for Evercore ISI, analyst Stephen Richardson thinks the company is well-placed to succeed, writing, “Piedmont is an early-stage project company positioned to address the pending supply gap facing the battery materials market. Core to value is a well-defined, domestic, hard rock lithium hydroxide mine + chemical plant in a proven and historically important supply basin (North Carolina)… Our view is steady progress towards major milestones (+ additional commercial clarity surrounding hydroxide sales / partnerships) should see the stock narrow the gap to NAV over time (and the NAV grow). The fundamental backdrop for lithium hydroxide price is strong, and we see PLL as a call on higher prices."
In light of these comments, Richardson puts an Outperform (i.e., a Buy) rating on PLL, and his $95 price target suggests an upside of 30% for the next 12 months. (To watch Richardson’s track record, click here.)
Based on Buys only – 3, in total – Piedmont has a Strong Buy consensus rating, showing agreement on the Street regarding the company’s forward outlook. PLL shares are trading for $72.95 and have an average price target of $88.33, implying a one-year upside of 21%. (See Piedmont’s stock analysis at TipRanks.)
FG New American Acquisition (FGNA)
The next stock we’re looking at couldn’t be more different from Piedmont. FG New American Acquisition is a SPAC (special purpose acquisition company). SPACs are companies formed for the express purpose of raising capital, locating a target company, buying it out – and taking it public. SPACs offer a route to the public stock markets for smaller firms that may not otherwise be able to conduct an IPO on their own. The popularity of SPACs can be seen in the huge sums they have been raising; last year, SPACs raised over $83 billion, while so far this year they have raised $100 billion.
FG New America formed for the purpose of seeking out a fintech or insuretech company with which to merge. Last month, FGNA announced that it has selected Opportunity Financial (OppFi) as its target. The merger between the two companies will result in OppFi entering the public stock markets with the ticker symbol OPFI. Pending FGNA shareholders’ approval – a meeting is slated for July 16 – the merger should be completed in the third quarter of 2021.
OppFi is a fintech platform providing consumer credit access, which has facilitated over 1.5 million loans for more than 500,000 customers. The company’s potential customer base is impressively large; over 60 million American consumers lack access to the traditional financial product market.
As the last set of financial results, OppFi’s most recent quarterly report is of deep interest to potential investors. OppFi reported a 1Q21 net income of $24.4 million, up 44% year-over-year. Adjusted Net Income came in at $19.3 million, a 48% increase from the same period last year. In a note that bodes well for OppFi in Q2, April’s net originations were up 23% from March and more than doubled year-over-year.
In insider trades, the key transaction from an investor perspective was made at the end of June by Larry Swets, President, CEO, and board member of FG New America. Swets bought 20,000 shares at a price of $229,600, making his total shareholding in the company more than $5 million.
Ahead of the proposed SPAC merger, D.A. Davidson analyst Christopher Brendler has been looking at OppFi and he believes the company offers a “unique opportunity.”
“OppFi is reinventing nonprime credit, and we believe the company is poised to deliver dramatic EPS growth, yet the stock is quite cheap,” the analyst said. “Although it does have significant credit and funding risk, we believe OppFi is fundamentally better positioned than prior alt-lending peers, and we are especially bullish here given the valuation against a strong near-term macro outlook.”
As the merger has not yet occurred, Brendler puts his rating on the current FGNA shares. He rates these as a Buy, and sets a price target of $13.50, implying an upside of 32% for the year ahead. (To watch Brendler’s track record, click here.)
There are two analyst reviews on record for FGNA stock, and both are Buys, giving the stock a Moderate Buy consensus rating. Shares are priced at $10.21 and the average target of $13.75 indicates room for 34% upside going forward. (See FGNA’s stock analysis at TipRanks.)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.