Let’s talk about insider trading. Not the illegal kind, but the perfectly normal – and completely legal – trade by top corporate officials. These are the occupants of the C-suite and the members of the boards of directors, corporate officers who know what goes on behind the scenes and are accountable to shareholders for bringing in profits. They typically own shares in their own companies and act based on the knowledge they have behind the scenes.
To level the playing field, federal regulators require company insiders to publicize these transactions — and investors can benefit from seeing which stocks company officials are buying. There’s one thing to remember: Company executives will sell their stocks for all kinds of reasons, but they will only buy big if they think the stock is on the rise.
So let’s take a look at some recent insider transactions. Using TipRanks’ Insiders’ Hot Stocks tool, we gathered recent data on two stocks that were recently purchased by board members for millions of dollars. In any case, this is an insider’s first purchase. Given the significant cost of the purchase, this indicates greater confidence in the company’s prospects in the short to medium term.
In addition to the recent high-quality insider buying, TipRanks data shows that both stocks have strong Buy ratings from the Street market and solid upside potential for the year ahead. Here you can take a closer look.
Sterns pharmaceutical products (STERN)
The first is Terns Pharmaceuticals, a biopharmaceutical research company that works in both early development and clinical trial phases. The company has set its sights on oncology and metabolic diseases, with a clinical program underway in each of these areas, targeting chronic myelogenous leukemia (CML) in the former and obesity, a major health problem, in the latter. The company’s pipeline consists of novel small molecule compounds with clinically validated mechanisms of action.
That’s a bit of a mouthful, but it amounts to a pipeline that includes two Phase 1 clinical trials. The first of these is TERN-701, an allosteric BCR-ABL tyrosine kinase inhibitor, or TKI, designed to treat CML. This cancer begins in the bone marrow, where blood cells are formed, and is considered a chronic, lifelong, and life-threatening disease that often requires changes in therapies. Terns’ drug candidate, TERN-701, is undergoing the Phase 1 CARDINAL trial, a two-part study to evaluate the drug’s safety, pharmacokinetics and efficacy. Interim data from the first cohorts of the dose-escalation portion of the study is expected to be released in December.
Also of note on the clinical trial side is TERN-601, which just completed a Phase 1 study. This drug is an orally dosed, glucagon-like peptide-1 (GLP-1) receptor agonist, which is being investigated as a treatment for obesity. The company published positive trial results from that study earlier this month, showing that TERN-601 caused statistically significant weight loss in trial participants over a 28-day period. The drug was considered well tolerated and the company plans to initiate a phase 2 trial next year.
Also in the field of obesity, Terns recently reported positive preclinical data from another drug candidate, TERN-501. These preclinical data support the use of TERN-501 in combination with a GLP-1 receptor agonist as a treatment for obesity. The data showed that TERN-501 resulted in greater weight loss and better retention of lean mass in the combination therapy.
These clinical programs don’t come cheap, and Terns recently made a public stock offering to raise capital. The corporate offering, which made more than 14 million shares available, closed on September 12. Terns raised approximately $172.7 million in gross proceeds from the sale.
With that in mind, we can turn to insider trading – and we see that Lu Hongbo, member of the Board of Directors, bought 476,190 shares on the day the public offering closed. Hongbo paid almost $5 million for this stock purchase.
This stock has also caught the attention of BMO analyst Etzer Darout, who is happy with the many catalysts lining up for it.
“With the obesity data from TERN-601 (oral GLP-1 agonist), TERN has delivered a once-daily and clinically competitive drug profile for two of its three clinical programs (TERN-501, TERN-601), giving us greater confidence moving forward Phase 1 CML dose escalation data with TERN-701 (BCR-ABL allosteric) in December. “With two clinical programs that have partially reduced risk and another event that reduces risk, we remain pleased with the risk reward for TERN and its design for value creation in oncology and metabolic diseases,” opined Darout.
These comments support Darout’s Outperform (i.e. Buy) rating on TERN stock, and his $26 price target points to a potential one-year gain of 159%. (To view Darout’s track record, click here)
Overall, this stock’s Strong Buy consensus rating is based on six recent analyst ratings that split 5-1 in favor of Buy over Hold. The shares are currently trading at $9.73, and the average price target of $19.80 implies an upside of 103% over the next twelve months. (To see TERN stock forecast)
Permian Resources (PR)
For the second stock on our list, we switch to the energy sector. Permian Resources is an independent oil and gas exploration and production company operating in the rich oil fields of Texas. The company’s name gives away its play: Permian’s assets are in the richest parts of the Texas-New Mexico Permian Basin. The company’s land holdings total over 400,000 net leasehold hectares, including over 68,000 net royalty hectares. These holdings are concentrated in the Midland and Delaware basins of the greater Permian formation, and approximately 45% of production on these holdings is crude oil.
This makes Permian one of the largest pure-play hydrocarbon E&P companies in the region, and on September 17, the company announced the completion of an additional acquisition of its assets in the Delaware Basin. The acquisition, a deal with Occidental, added ~29,500 net acres and ~9,900 net royalty acres, along with a significant amount of midstream infrastructure, to Permian’s existing positions in Reeves County, Texas.
In another update that should interest investors, Permian announced a big increase to its regular base dividend on September 3. The dividend payment, which previously stood at 6 cents per common share, has been increased by 150% and is now set at 15 cents per share, payable from the third quarter of 2024. The new annual rate of 60 cents per share will increase future returns yielding 4.3% based on the current share value.
Permian recently secured a major purchase from an insider, company director William Quinn. Quinn made two purchases on September 10 and 11 for a total of 312,429 shares – at a cost of more than $3.99 million.
As for the analysts’ view on the stock, we’ll check with Truist’s energy sector expert Neal Dingmann, who sees Permian as one of the best stocks he covers, with strong capital returns and effective merger activity. In a note earlier this month, Dingmann wrote: “We believe PR activities continue to be among the best in our coverage, delivering better results and reducing unit costs, while we now add an equally stable financial plan that includes notable share buybacks. In addition, the large equity overhang has been eliminated, as existing private equity is likely to sell fewer shares in the future. The company also continues to have one of the more effective M&A strategies that will not change in the future, with a focus on adding value in core areas. Therefore, we believe there is still significant upside potential for the share price as the current valuation does not reflect continued operational and financial success.”
For Dingmann, PR shares have a Buy rating with a $22 price target, implying a 55% upside over one year. (To view Dingmann’s track record, click here)
Overall, PR’s Strong Buy consensus rating is based on 16 reviews, including 14 Buys against just 2 Holds. With a trading price of $14.18 and an average price target of $19.43, Permian shares have an upside of 37% this year. (To see PR stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a 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 for informational purposes only. It is very important to do your own analysis before making an investment.