Million-dollar purchases of mega cap companies isn’t something we see too often. A director at Microsoft Corporation (MSFT) and another at Walmart Inc. (WMT) each bought a little more than $1 million of their blue-chip stocks last week. Normally, insiders at well known companies act like the stock is an alternative to an ATM machine and sell, sell, sell. Blue chip investors might want to keep an eye on Microsoft and Walmart, especially following weakness.
Seven figure buys are flashing sirens. As such, we have our eye on another million-dollar purchase. ADT Inc. (ADT) Chief Executive Officer James D. DeVries added 143,000 shares to his portfolio at $7.13, for a grand total of $1.02 million. (1) Considering DeVries’ base pay is $3.15 million, putting a third of your income into a single investment could be interpreted as a sign of confidence. Prior to his recent buy, the CEO’s activity was either tax or options related since taking charge after leaving The Allstate Corporation (ALL).
Sometimes you have to guess why insiders are buying their stock and sometimes it seems to be right out in the open. ADT and Google are teaming up to create a smart home security offering. (2) The two companies will use Google’s Nest hardware to “create a fully integrated set of devices, software and services for the secure smart home.”
Hedge fund manager, Bill Miller told his clients in an investors’ note, “The company [ADT] has set 2H21 [second half of 2021] as the time frame to launch their professionally installed and co-branded offering with Google.” (3)
Obviously, we don’t know for sure, but we can guess that 2 + 2 = $1.02 million.
So far, it doesn’t appear that Wall Street has factored in the product launch with Google as sales and earnings are forecasted to decline slightly compared to this year. (4) In fact, the full year consensus earnings per share (EPS) estimate for next year has fallen from $1.18 to $0.84 in the last month. If the relationship with Google proves to be successful, then there could be upside in earnings potential.
As it stands now, analysts put a one-year price target of $10.53 on ADT, which is 26.56% higher than where the stock is as we type, $8.32. Add in the 1.63% dividend yield and the total return could top 28%.
Aside from the partnership with Google, DeVries might see his $1.02 million investment as a value play, agreeing with portfolio manager Miller. ADT trades at a discount to its peer group across most metrics. The average direct competitor trades at 23 times forecasted EPS compared to 11.4 for ADT. The typical company in the space is valued at 22 times cash flow and 3 times sales. Whereas ADT commands just 8.6 times cash flow and 1.3 times sales.
Overview: ADT Inc. (ADT) partnership with Google might accelerate earnings and sales growth. Upside in earnings and sales usually leads to upside in stock prices. With ADT trading significantly below industry norms in most key metrics, there is plenty of room for the stock to head higher if the relationship with Google is successful. Perhaps, CEO DeVries believes big things are about to happen and that’s why he bought $1.02 million in ADT shares.
Shares of ADT could be appropriate for growth investors who don’t mind above average price volatility.
1 – https://www.secform4.com/insider-trading/1430382.htm
2 – https://investor.adt.com/press-releases/press-release-details/2020/ADT-and-Google-Partner-To-CreateLeading-Smart-Home-Security-Offering/default.aspx
3 – https://www.insidermonkey.com/blog/is-adt-inc-adt-a-good-stock-to-buy-in-2021-920215/
4 – https://finance.yahoo.com/quote/ADT/analysis?p=ADT