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As Main Street Piles Into Trump’s SPAC, Insiders are Getting Out
For a brief moment on October 21, America’s political divide vanished. Trump supporter or not, Main Street finally agreed on one thing.
Digital World Acquisition (NASDAQ:DWAC) was going to the moon.
Donald Trump’s media SPAC would rise from $10 to $175 in a matter of hours, driven by buying from both die-hard fans and Redditors looking to cash in on the hype.
But there was one group that was getting out.
On Friday, news emerged that DWAC’s primary investors — Lighthouse Investment Partners, Saba Capital Management and D.E. Shaw — had sold all of their unrestricted stock. Maybe they reasoned the political fallout might be too great. But equally likely, perhaps they fear that the former President could instantly torpedo the merger. Ever the dealmaker, Mr. Trump might reason that creating his own SPAC would shift DWAC’s $480 million windfall to him.
Either way, one thing is clear: insiders don’t want to ride the DWAC rollercoaster. And given the performance of the Insider Track strategy, it’s likely wise to limit your investment too. Because love or hate him, Mr. Trump too, is an avid dealmaker at heart.
Three Stocks Corporate Executives are Buying
Sales of DWAC aside, it’s been an unusually busy week for executive buying. Insiders have snapped up $167 million worth of stock in the past week, roughly double the ordinary rate. Add in the fact that the U.S. stock market is nudging record highs, and it’s clear that insiders believe that more good times are yet to come.
This week, three innovative companies make the Insider Track cut.
When Volcon (NASDAQ:VLCN) IPO’ed on Oct. 6, I frankly wasn’t that excited. Dozens of companies worldwide have tried their hand at emobility products, and most have failed to produce anything commercially viable. Companies are Arcimoto (NASDAQ:FUV) to ElectraMeccania (NASDAQ:SOLO) have seen their stocks drop 70% or more from their peaks.
And I’m glad I stayed away: VLCN is down 43% from its first day highs…
…But this electric vehicle maker is finally looking tempting for three reasons.
First, reviews of the company’s flagship off road e-motorcycle are coming in hot.
“This fully-electric bike is an off-road hooligan I wish I could ride on public roads”, wrote Jalopnik staff writer José Rodríguez Jr. “This is an e-moto with what seems like a narrow set of uses, but its appeal is broad.”
Other reviewers voiced similar opinions. A “hilariously fun” ride… “big tires, big fun”… These positive reviews matter for the $7,995 bike because, like any new EV brand, perception matters.
Second, insiders seem to have realized how cheap VLCN’s stock has become. On Wednesday, the company’s founder and CTO, Christian Okonsky added 31,281 shares to the 300,000 he already owns — an action almost never seen for newly listed firms: insiders are usually trying to cash out during an IPO, not double down. Company director Adrian James also followed suit with a 100,000 share purchase.
Finally, there’s the price. Though VLCN shares have since jumped to $11, its $120 million market cap still is a fraction of other EV hopefuls.
Byrna Technologies (BYRN)
Sometimes, unbiased product reviews are harder to find. And that’s where CEO purchases, like recent ones at Byrna Technologies (NASDAQ:BYRN), can reveal more than people think.
Byrna is a maker of less-lethal firearms that still pack a punch. This isn’t your average paintball gun — it’s a compact device designed to shoot pepper projectiles and tear gas blends.
The company went gangbusters in April after a feature on Sean Hannity’s radio show.
“I love the idea of homeowners and every law enforcement agent having an effective ‘nonlethal’ alternative in addition to conventional firearms,” tweeted the conservative media personality. “This is not a paid endorsement, I just love the product.”
But Byrna’s sudden popularity also became its downfall. As negative reviews over shipment delays and overwhelmed customer service poured in, BYRN saw its stock crash from $30 back down to $17.
Today, the Insider Track strategy is highlighting Byrna Technologies stock once again. Last week, CEO Bryan Ganz bought an additional 10,000 shares to top of the 500,000 he already owned. Chief Strategy Officer Michael Wagner also added 6,000 shares.
These purchases suggest that Bryna’s demand remains strong despite annoyed customers. And as the company’s backlog eventually gets fulfilled, the stock looks like one to buy the dip.
Windtree Therapeutics (WINT)
Finally, insiders at microcap Windtree Therapeutics (NASDAQ:WINT) seem to think they’re onto something big. Last week, WINT’s Chairman James Huang and CEO Craig Fraser increased their stake by 10% and 17% respectively, an amount that tends to signal abnormal insider information.
A look into the biotech firm’s pipeline explains why.
Windtree Therapeutics is a late-stage research firm with four drug candidates in phase-2 trials. Two of these medications — Istaroxime and Lucinactant — should have results within the next several months.
The timing of purchases is noteworthy. Phase-2 trials tell clinicians how well a treatment works, and strong findings can send stocks up 2-3x. In the case of Windtree, shares may rise by a a factor of 10x since its two drug candidates deal with heart and lung disease. The more expensive the illness, the more Medicare will pay for novel drugs.
Windtree also has a hidden weapon: its lung disease treatment has a potential use in Covid-19 patients. If their 2018 preclinical data were any indication, WINT is a company that Moonshot investors should watch.
Facebook CEO Continues to Cash Out
DWAC isn’t the only politicized company where insiders are cashing out. There’s one more firm that has drawn ire from both sides of Congress:
In the past month, whistleblower allegations have started to pain Facebook as a company that knowingly puts profit ten steps ahead of ethics. In their words, it’s not just the fault of bad actors with fake profiles or some overaggressive filters. It appears Facebook itself knew the platform had problems and decided to maintain complicit.
Key users have also been abandoning the site. Usage among American children between four and 15 has dropped from 18 to 17 minutes per day since 2019. (TikTok has risen from 44 to 87 minutes). Commentators on Reddit’s r/WallStreetBets have gleefully “dancing on what they see as Facebook’s stock market grave.”
And the biggest seller of FB?
Its CEO, Mark Zuckerburg.
Ordinarily, I wouldn’t worry so much about insider selling. People unload stock for reasons besides price (i.e., expensive bachelor party, divorce or both). And academic studies have shown that executive buying is far more informative than selling.
But Mr. Zuckerberg’s exit velocity is noteworthy. In the past three months, he and his charitable organization have sold $1.2 billion worth of corporate stock, compared to $804 million for Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Larry Page and $0 for Amazon’s (NASDAQ:AMZN) Jeff Bezos. And no matter how quickly management rebrands Facebook, its problems go deeper than anything a simple name change will fix. (Facepalm & Co., anyone?)
Put another way, it’s an uphill battle for Facebook as it stumbles its way into the Metaverse.
When Hedge Funds Sell, Should You Listen?
DWAC fans might rightly wonder: do hedge fund sales mean anything for the stock? After all, several of Wall Street’s “finest” became poster children for arrogance — and under-performance — after short-selling GameStop (NYSE:GME) stock in January.
It turns out however, that hedge fund bosses do perform better than market averages — it’s only after deducting fees that they underperform. Data collected by TipTanks, a financial aggregation site, found that major institutional transactions have returned 36.7% annually. At that rate, $10,000 compounds to $1 million within 15 years.
The best part? Most of these large funds must publicly disclose their holdings within 48 hours of trading. Main Street investors rejoice — it’s still possible to achieve hedge fund returns and keep the fees for yourself.
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On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.