By now, it’s old news, but long-time Carnival (NYSE:CCL) director Randall Weisenburger shocked the investment world in early April by picking up 1.25 million shares of CCL stock at $8 a share.
It’s not every day you see a director haul off and buy $10 million worth of stock. That’s especially true when that stock has fallen by nearly 69% year-to-date.
As I write this after the May 29 close, CCL is down more than 1% for the day to $15.74, slightly less than double the price paid by Weisenburger. He’s already got himself nearly a two-bagger in just seven weeks. Annualized, that’s almost an 800% return.
Not a bad seven week’s work, if you can get it.
So, who is Randall Weisenburger, and why did he buy?
Who Is Randall Weisenburger?
Well, as it relates to Carnival, he’s been a director of the company since 2009. He is the chair of both the company’s Compensation Committee and the Nominating & Governance and Compliance Committee. He also sits on the Audit Committee.
In fiscal 2019, Weisenburger was paid $172,500 in cash for his board service. In addition, he was awarded $174,976 in company stock, for total compensation of $347,476, about 3% of CEO Arnold Donald’s pay package in 2019.
Don’t get me wrong, $347,000 a year isn’t bad for what amounts to six or seven business trips per year plus a bunch of reading while at home. It’s a sweet gig if you can get it.
As for Weisenburger’s background, his last corporate job was executive vice president and chief financial officer of Omnicom Group (NYSE:OMC), where he served in this capacity between 1998 and 2014. Since 2014, he’s managed the affairs of Mile 26 Capital LLC, which is based in Greenwich, Connecticut. He’s also served on the board of Valero Energy (NYSE:VLO) since 2011.
Pretty standard stuff.
According to SEC filings by Mile 26 Capital LLC and its affiliates, the partnership was created in 2015. As of Nov. 14, 2019, Mile 26 had raised $79.2 million with a $1 million minimum investment. The securities sold were pooled investment fund interests.
Again, it’s nothing out of the ordinary for a former CEO of a large advertising company.
And Why Did He Buy CCL Stock?
That’s the million-dollar question.
Before stepping up to the plate to buy $10 million worth of CCL stock, Weisenburger owned 125,352 shares. Of the directors and officers of the company, according to Carnival’s proxy, his holdings were the third-largest behind only Donald (559,617 as of Jan. 16, 2020), and Micky Arison, the chairman of the board and one-time CEO, who controls 18.4% of its stock.
Non-executive directors are required to own stock worth at least five times their annual cash retainer. In 2019, Weisenburger’s cash retainer was $172,500, so he’d be required to hold $862,500 of CCL stock. Even at the depressed level of Carnival’s stock in April, the director met the requirements based on his existing holdings.
He didn’t have to increase his holdings by 11-fold. But he did.
The Motley Fool contributor Mike Raye recently quoted legendary Fidelity Magellan money manager Peter Lynch while discussing why the director might have bought so much stock.
“Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.”
I’ve read every one of Lynch’s books and that line always stuck with me. Investors constantly wonder why someone’s selling, but the truth is, we all have bills and expenses to pay. But when you step up to the plate to the degree Weisenburger did, you’ve got to believe there’s something to the buying.
And there could be.
The director joined the company in January 2009. At the time, its stock had fallen below $20 in the Great Recession market correction of 2008. Perhaps he didn’t buy enough stock when Carnival was at such a low price and has regretted it ever since.
You know what they say, fool me once, shame on you, fool me twice, shame on me. Maybe he just wanted a chance for redemption. I suppose we’ll never know.
In April, I recommended that investors wait for CCL stock to fall into single digits before taking the plunge. Since April 24, the day it was published, Carnival’s up more than 32%. Unless something terrible happens in the next few months (second wave, more stay-at-home measures, something along those lines), it doesn’t look like it will be revisiting single digits anytime soon.
I guess it pays to be an insider.
The only issue I have with the director’s purchase is the $8 buy price. As I look at April 6 trading, its stock opened at $9.28, got as high as $10.96, as low as $9.14, and closed at $10.21. Even looking at Carnival plc (NYSE:CUK), the stock never touches $8 on April 6.
Well, whatever the reason, Weisenburger’s winning big time, and that’s all that matters.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.