Every fisherman knows that there’s good eating to be found on the seafloor and river bottoms. Flounder, halibut, sole, catfish – bottom dwellers are known for their good taste. And sometimes, the same can be said in the stock market.
Share prices can fall for a wide range of reasons, and the market’s bottom fishers take advantage of that. The key is to find the best tasting morsels – those stocks that are priced low, but undervalued, and are not falling due to some fundamental flaw. There are plenty of reasons, legitimate reasons that don’t indicates unsoundness, for a stock’s price to collapse. These can include panic selling in a general market fall, price declines in a particular industry, temporary economic issues. The result is an opportunity to practice the ultimate value strategy -- buy in while the stock is weak.
It’s good to look for a signal that a low share price doesn’t indicate weakness – and one strong signal can be found in the insider buying habits. Insiders are corporate officers, with high-level knowledge of a company’s inner workings and prospects – knowledge that gives them a leg up when it comes to trading.
With this in mind, we’ve used the TipRanks Insiders’ Hot Stocks tool to find two stocks whose price has dropped recently – and that drop has coincided with some ‘informative buy’ insider trades. Let's take a closer look.
Allogene Therapeutics (ALLO)
We’ll start by looking at Allogene Therapeutics, a clinical-stage biopharmaceutical company. Allogene gets its name from its prime research focus, on the development of allogenic chimeric antigen receptor T-cell (AlloCAR T) therapies. This is a class of precision medicines used in cancer treatment. Allogene’s pipeline follows 5 drug candidates, in various early stages of preclinical and clinical testing.
Allogene’s shares have been falling steadily for the past 12 months; the stock is down 63% in that period. However, the company has recently reported some positive news on the development front, and from the FDA, which has potential to provide a catalyst for the shares.
Last month, the company reported positive results from two Phase 1 clinical trial programs. The ALPHA1 and ALPHA2 trials, two trials of drug candidates ALLO-501 and ALLO-501A, target non-Hodgkin’s lymphoma. The company’s announcement indicated that the ALPHA trials had demonstrated AlloCAR T therapy to be safer and more durable than current autologous cell therapy when used in CAR T naïve patients. The new therapy showed a ‘consistent and manageable’ safety profile, and long-term complete response rates reached 15 to 18 months. The company has initiating plans to proceed on toward Phase 2 trials as a follow-up.
The second positive clinical news was about the Phase 1 UNIVERSAL trial, a program evaluating ALLO-715 as a treatment for multiple myeloma. The company released updated data, which showed a well-tolerated safety profile for the drug candidate, as well as a 71% overall response rate. In the drill down, 46% of patients showed a ‘very good partial response or better,’ and the median duration of response was 8.3 months.
The third news catalyst came from the FDA, which in January released a clinical hold which had been in place across all AlloCAR T trials. The hold was put in place due to a chromosomal abnormality observed in one patient; the abnormality was determined to be to related to the Allogene treatment. The release of the hold will allow Phase 2 trials to proceed this year.
On the insider front, there have been two informative buys of this stock last week, both by Board members. Joshua Kazam spent $189,000 to pick up 15,000 shares of the company. And, in a larger transaction, Arie Belldegrun spend $1.9 million buying 155,039 shares.
As Allogene's development activities remain full steam ahead, JMP analyst Remi Benjamin is favorably consider the significant pullback in ALLO shares as a buying opportunity.
“The company intends to resume operations as soon as possible. With a pivotal trial of ALLO-501A now slated to commence by mid-2022, data for ALLO-715 in combination with a gamma-secretase inhibitor to read out likely in 2H22, both ALLO-605 and ALLO-316 likely to follow suit, and a strong cash position of $795.4MM (pro forma), we continue to believe Allogene shares represent an attractive entry point at current levels,” Benjamin opined.
These bullish comments support Benjamin’s Outperform (i.e. Buy) rating, and his $27 price target implies an upside of 133% by year’s end. (To watch Benjamin’s track record, click here)
Overall, it’s clear from the Wall Street consensus that there’s broad agreement on the bullish view of Allogene; the stock’s 9 recent reviews include 8 Buys and 1 Hold, for the Strong Buy consensus rating. Allogene’s current trading price is $11.58; the $34 average price target implies a robust upside of ~194% for the next 12 months. (See ALLO stock forecast on TipRanks)
Thor Industries (THO)
The second stock we’re looking at, Thor Industries, gives an interesting example for investors interested in both bottom fishing and insider favorites. This company is a manufacturer of recreational vehicles, and the RV sector generally has seen a boost this year. As the economy reopened, and people found they had time and funds for leisure activities, outdoor fun was quickly found compatible with social distancing. Thor, which is the owner of the popular Airstream and Heartland RV brands, saw a major year-over-year boost in revenue for its fiscal year 2021, gaining 51% from $8.16 billion to $12.32 billion.
The company pays out 43 cents per common share, or $1.72 annualized, which gives a yield of 1.7%. The company also has an active share buyback program, which was boosted last month to $250 million for the coming year.
Nevertheless, Thor’s shares are down ~40% from its last March peak. The stock took a large hit this month, with a deep 11% drop yesterday. This was both faster and deeper than the overall markets’ slip at the same time.
Looking at the insider activity on THO, we find that two Board members have made ‘informative buys’ this month. Andrew Graves bought 2,000 shares, spending upwards of $209K on them, while Peter Busch Orhtwein bought 10,000 shares for a purchase price of $985,300.
These directors are not the only ones bullish here. Baird’s 5-star analyst Craig Kennison sees plenty of potential here for future earnings.
“The market has little appetitive for small and mid-cap value ideas today – but sentiment changes and our fundamental work indicates excellent value in Thor shares today. In a cycle-neutral scenario with industry shipments near 500,000, we believe Thor could earn roughly $10-$11,” Kennison noted.
To this end, Kennison rates THO an Outperform (i.e. Buy), with a $150 price target that implies an upside of 68% this year. (To watch Kennison’s track record, click here)
All in all, Thor Industries has picked up 4 analyst reviews recently, and these break down 3 to 1 in favor of the Buys over Holds, for a Strong Buy analyst consensus view. Shares are trading for $89.05 and the $150 average price target matches Kennison’s, for a 68% upside potential. (See THO stock analysis on 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.