What stocks did US directors buy or sell in August?

August has been something of a chequered month for the US stock market. The Samp;P 500 struggled to make gains at the beginning of August, as US-China tension flared up over Taiwan and investors tried to anticipate how high interest rates could rise. Despite a bumpy start, the index enjoyed a spurt of strong momentum in mid-August, after the rate of inflation appeared to be easing and investors wondered whether interest rates may, as a result, rise more slowly than previously thought. The market declined somewhat rapidly toward the end of the month, as the Fed Chairman gave a ‘hawkish’ speech that warned of a ‘sustained period’ of lower growth.

All indicators suggest it is probably too soon to rest on our laurels. Many economists think the Fed could raise interest rates by 50 basis points or more in the coming months. It seems that the question is not whether rates will rise, but how much rates will rise by. This has not dampened the spirits of bullish directors that have been investing in US shares. Warren Buffett and Bill Gates have both increased their stakes in US companies, not in Berkshire Hathaway or Microsoft, but in other firms that meet their investment criteria. Elon Musk has also been trading US shares. He has been selling stock in Tesla, but does this mean he is bearish about his own company? Let’s take a closer look…

Elon Musk sells Tesla shares

The electric-car maker, Tesla, has been bolting along in the fast lane. The firm has boosted revenues, profits and cashflows in recent years. We can also see from the chart below that Tesla has consistently been ahead of the Samp;P 500. According to the StockRank Style system, Tesla is a ‘high flyer’ – a profitable, cash-generative stock with strong price momentum that broker-analysts are optimistic about. Nevertheless, on 9 August 2022, Elon Musk sold 7.9m Tesla shares. Does this mean Musk is bearish? Maybe not…

Musk may need the money to buy Twitter if he is forced to complete the takeover that he proposed in April, but has opposed since July, when he accused Twitter of withholding information about fake accounts. If the takeover does not happen, Musk has said he would buy Tesla shares again. He still owes around 15% of the firm.

Largest sells by executive directors

Executive directors like Musk have access to the most sensitive information about a company’s finances and operations. We have therefore compiled a list of CEO/CFO sales in Samp;P 500 companies where the sale represented a large proportion of the firm’s market cap (see below). Readers can use this list to judge whether their investment decisions are betting with, or against, the board of directors. The table shows that Elon Musk’s sell was the largest sale made by a CEO over the last month.

Sells by Dow 30 Directors

Director sells sometimes coincide with bad news, like a negative earnings report, but from time to time, the transaction is arguably a contrarian sell – i.e. a sale that takes place even though the company is performing well. For example, Apple’s share price has risen from $149 to $164 over the last year, but directors at the company have been selling, as we can see from the table below.

The table shows director sells in Dow 30 companies. Apple, Procter amp; Gamble and Walmart are worth taking a closer look at, because two separate directors at each of these companies have been selling shares in the companies they run…

Contrarian Selling at Apple

Some investors may regard Apple to be a safe haven during an economic downturn. In late July, the firm announced that demand for its products, including iPhones, remained strong, despite a wider context of weak consumer spending. This good news didn’t stop Katherine Adams (Senior Vice-President) or Luca Maestri (CFO) from selling. It is of course impossible to know where Apple’s share price will go next, but the firm remains one of the most profitable companies in the US market, with operating margins of 30% and a ROCE of nearly 60%.

Walmart CEO Sells After Profit Warning

Walmart warned on profits earlier this year, blaming surging prices for food and fuel. The company has started cutting hundreds of jobs in a restructuring effort. The firm is following a path charted by many companies that are cutting jobs or slowing hiring as economic growth falters due to rising interest rates, inflation and an energy crisis. Perhaps these factors help to explain why Doug McMillon (CEO) and S. Robson Walton (the son of Walmart’s founder) have both been selling Walmart stock.

Pamp;G Director Sells As Brokers Cut Forecast

Procter amp; Gamble delivered quarterly results in early August. Earnings missed estimates and the firm forecast lower sales growth as a result of high transportation and commodity costs, consumer cutbacks and the retailer’s reluctance to raise prices. Brokers are also becoming more pessimistic about the firm’s prospects. The mean estimate for 2023 earnings has fallen over the last year, from $6.48 to $5.94. Fama Francisco, a Divisional CEO, sold Pamp;G shares in early August.

Warren Buffett invests in Occidental Petroleum

Some commentators describe the United States as a ‘great power in decline’, but Warren Buffett is on the side of the optimists. Throughout his career, he has said, ‘never bet against America’. He repeated that message in Berkshire Hathaway’s annual shareholder letter last year and, last month, arguably put his money where his mouth is when Berkshire purchased shares in the oil and gas company, Occidental Petroleum.

Energy firms have faced pressure as concerns that economic weakness in the US and Europe would cut demand for crude oil. This hasn’t deterred Berkshire Hathaway, which now owns around 18% of Occidental Petroleum (OXY). Perhaps Buffett is betting on renewable energies. Occidental does have plans to set up carbon capture and storage (CCS) ventures. It is also possible that Buffett is betting on government subsidies that would provide tax breaks to firms that undertake CCS ventures.

We can not be sure about Buffett’s exact motivation, but it is worth noting that the Oracle of Omaha is arguably deviating from his time honoured strategy of buying quality merchandise when it is marked down. Occidental is one of the strongest performers in the Samp;P 500. The share price has risen from $23 to $69 over the last year.

Bill Gates increases stake in Ecolab

Bill Gates is another household name that has been investing in US stocks recently. Since stepping down from the helm of Microsoft, he has focused increasingly on philanthropic work. In August, he boosted his stake in Ecolab, a firm that is arguably aligned with Gates’ global health agenda. Ecolab provides water, hygiene and infection-prevention services. Gates bought shares in Ecolab through Cascade Investments LLC, his investment vehicle, on three occasions in August.

Cascade Investments now owns around 10% of the company. Gates’ investments were technically contrarian buys. The company’s share price has fallen from $220 to $171 over the last twelve months. It is of course possible that Gates was encouraged by the firm’s financials. Ecolab has healthy operating margins (11%), a healthy Return on Equity (16%) and an overall QualityRank of 68, not in the top deciles, but still comfortably above the market average.

The Largest Director Buys

The trades by Warren Buffett and Bill Gates were some of the largest director buys over the last month. The table below shows the largest buys where the trade represented a large proportion of the market cap. We can also see that Bernard Kim (CEO of Match) and Jeffrey W Ubben (Board Member at Exxon) have both been buying shares in their own company. Let’s take a closer look…

Boardroom Activism At Exxon?

Exxon, like Occidental Petroleum, is an oil and gas company. Since the start of the Ukraine war, many energy companies have either left Russia or transferred their stakes in Russia-based assets. Exxon Mobile has been following this trend. On August 3, the firm announced that it was transitioning Sakhalin-1 assets in Russia ‘to another party’. A few days later, on August 8, Jeffrey W Ubben bought $88m worth of shares in Exxon, where he sits on the board. Naturally, it is unclear whether Ubben’s transaction was linked to Exxon’s exit from Sakhalin-1. Perhaps Ubben has been encouraged by Exxon’s recent financial performance. On July 29, the firm posted its biggest quarterly profit ever on the back of soaring energy prices. I am of course speculating, but it is also possible that Ubben’s buy transaction was part of a bigger scheme to drive his shareholder activist agenda around ‘inclusive capitalism’. Ubben has been described by the New York Times as ‘a force in shareholder activism’, so it will be interesting to keep an eye on his boardroom manoeuvres as we go forward.

Dating App CEO ‘swipes right’ with Contrarian Buy

Dating and courting were different in the supposedly ‘good old days’. Lovers would write letters, send flowers and serenade each other, among various other romantic gestures that have since been made redundant thanks to dating apps like Tinder, OkCupid and Bumble – all apps owned by the US firm, Match. Readers familiar with Tinder will know that dating today is just a matter of swiping right if you’re interested, left if you’re not. Has cold, mechanical efficiency taken the spark out of romance? It’s not for me to say, but it is worth noting that the CEO of Match, Bernard Kim, perhaps ‘swiped right’ on dating apps when he bought $1m worth of Match shares at the start of August. The purchase is arguably a contrarian buy. The share price has more than halved over the last year (see chart) although the company does have good quality metrics, including a healthy ROCE (18%), solid operating margins (20%) and a Piotroski-F Score of 7 out of 9.

Director Deals: USA Data Is Coming To Stockopedia

The stock market is arguably a zero-sum game. If you’re buying, someone else is selling and vice versa; either way, one of you is wrong. Directors typically have a huge huge information advantage in this zero-sum game. They should have intimate knowledge of a company’s future prospects. Indeed, various academic studies suggest that strategies that buy stocks after director share purchases do beat the market. Director deal data is currently available on the Stockopedia website, although it is only available for UK companies at the moment (see here). We will be providing the exact same data for US and international stocks as we go forward. You can see a sneak preview of the trades for Ecolab. When this data becomes available, we hope Stockopedia members will be able to use it in order to understand whether their own investment decisions are in line with company director investments.

Stockopedia