Welcome to Episode 145 of Special Situation Investing.
Peter Lynch once said: “insiders might sell their shares for any number of reasons, but they buy them for only one—they think the price will rise." I think of this quote when I visit the website dataroma.com almost every weekday to keep tabs on insider buying. Dataroma is how my cohost found Texas Pacific Land, a very lucrative find to say the least. Like Lynch, we don’t care so much what insiders are selling but we pay close attention to who is buying what. Today’s piece will introduce a few companies this process recently highlighted.
Before diving in, I will remind myself, and you, that this is a very biased list. Since I don’t research every company that shows up with insider buys, and I actively avoid many companies outside of my circle of competence, there are guaranteed to be interesting companies and trends that don’t catch my eye. But that’s just life and human limitations. So, now, let’s dive in.
RENN Fund (RCG) and Texas Pacific Land (TPL)
To kick it off, I’m lumping the RENN Fund and TPL together. This is because the purchases of both are by the same individual—Murray Stahl—and TPL is the largest position within the RENN Fund. Stahl buys TPL like clockwork, appearing to only pause purchases during periods when the SEC restricts him from buying. I won’t cover TPL in any detail as our archives are full of our thoughts on the company.
The RENN Fund is one we haven’t covered yet. Essentially, it’s a closed fund managed by Stahl where he has flexibility to invest in his best ideas whether they be private companies, public companies, options, shorts or longs. The fund’s holdings can be found on Horizon Kinetics website and offer a glimpse into where Stahl is seeing value, with a lag of course. For much of the past few years, the fund has traded at a discount to its net asset value, sometimes as large as 20%. Over this period, I built up a small position whenever the discount got near that range. I also took note when over the past year, Stahl doubled his daily purchases from about 600 shares per day to roughly 1200 shares. The shares rose 60% over the past year but it still trades at a 13% discount. According to its recently released annual report, the fund’s three top holdings, which account for about 50% of the net asset value, are Texas Pacific Land, FitLife Brands and LandBridge.
Matador Resources (MTDR)
Matador Resources is an independent oil and natural gas company with operations focused on the Wolfcamp and Bone Spring plays in the Delaware Basin in Southeast New Mexico and West Texas. It has secondary operations in the Eagle Ford, Haynesville and Cotton Valley plays.
The company’s operations consist of “exploration, development and production operations and provides natural gas processing, oil transportation services, natural gas, oil and produced water gathering services and produced water disposal services to third parties.”
Over the past two years, Matador insiders have consistently bought company stock nearly every month. Additionally, along with its latest earnings, Matador announced a 25% increase to its dividend and the CEO highlighted the consistent insider buying as evidence of the management and board’s confidence in the company. He said:
“Raising the dividend—and senior management buying the stock, of which there are thirty buys since 2021 and no sells—is the sincerest way we know to express our confidence in the operational and financial outlook for Matador going forward… Furthermore, this dividend increase reflects the Board’s confidence in Matador’s ability to generate increased adjusted free cash flow going forward. Matador projects adjusted free cash flow will approach $1 billion in 2025... Meanwhile, Matador has in fact reduced—as pledged—its leverage ratio from 1.3x…in September 2024 to 1.05x at December 31, 2024.
US Energy Corp (USEG)
U.S. Energy Corp’s website claims the company is an “independent energy company focused on the acquisition and development of oil and gas producing properties primarily in North Dakota and South Texas. It targets low decline assets with existing infrastructure that allows it to “maximize return on capital, enabling the company to efficiently increase shareholder value in a cost effective and sustainable manner.”
Given that a long-term chart of USEG shows a parabolic decrease in the stock’s price, the company doesn’t have a track record of doing what the claim to want, namely, increasing shareholder value. But since investing is about the future not the past, US Energy’s recent insider buying and share repurchases are noteworthy.
The CEO of US Energy Corp consistently bought his company’s stock every week since last September. With fifty-eight separate purchases he picked up approximately 29,000 shares for slightly less than $50,000 or 0.1% of the total company. The company also recently, extended its $5 million share repurchase program, of which $3.8 million remains, and bought back 635,400 shares at a cost of $1.5 million from one of its directors. Although the numbers are small, this is occurring on a company with a market cap of $53.4 million. While all of this doesn’t guarantee of an inflection point in the company’s record, it is enough to make one curious.
PrimeEnergy Resources (PNRG)
Sticking with the oil and gas theme for one more company, finally there’s PrimeEnergy Resources. What caught my attention about this company was a purchase by a Robert de Rothschild, it is always curious to see a Rothschild involved in a company. The transaction was a purchase for just under $200,000 of the stock but a deeper look revealed a sale had been made on the same day of the exact same amount, canceling out the purchase. So what looked like a purchase in fact wasn’t, but it got me interested enough to look at the company. Here’s a few points I found that piqued my interest:
It’s a microcap oil and gas company whose primary asset is producing and non-producing acres in Texas and Oklahoma.
Annualizing last quarter’s fully diluted net income gives a 19% yield on today’s stock price.
The company is almost a decade behind its oil and gas peers in transitioning from traditional wells to horizonal drilled wells. This is consuming much of its cashflow but is increasing revenue.
The long-term management owns more than 50% of the stock.
The company is low-profile with no earnings calls and its website is barebones.
The company is buying back stock.
All in all, I think PrimeEnergy Resources is an interesting setup.
Peabody Energy (BTU)
On February 24th, James Grech, CEO of Peabody Energy purchased $100,000 worth of stock. While we have avoided coal producers choosing to buy NRP, a coal royalty, instead, the recent steep decline has got us wondering if an opportunity in the producers could be near.
The chart above shows the steep declines in Peabody, Core Natural Resources, Alpha Metallurgical Resources, and Warrior Met Coal. Sadly, because we’d love to buy at lower prices, NRP has out performed its sector, down less than 10% from its recent high. But more on that perhaps in our next Portfolio Update.
Eagle Materials (EXP)
The last company to highlight today is Eagle Materials. Looking back two years on dataroma reveals insiders only sold shares until last month when a director broke the trend by buying $80,000 worth of stock. Eagle Materials has remained high on my watchlist since I wrote it up last year. The company has continued to impress me with its consistent free cashflow generation and measured capital allocation. The top priority of management is to maintain and deepen EXP’s low-cost producer status though cycle highs and lows. Progress over the last year included major maintenance projects at a couple of its plants and minor, but accretive, acquisitions, including a pure aggregates plants. In all, I am impressed with the managements focus and actions. But, as the table below from the company’s proxy shows, EXP’s directors and executive officers all combine only own a meager 1.6% of the company’s stock. Not what I’d want to see.
In the table below, I included a recent purchase of a quarter million dollars by an insider in a company in the same sector as EXP, Martin Marietta Materials.
An anecdotal note on this company: I recently talked to a friend whose been in the cement business for forty years. He said if he could own one of the major cement companies, it’d be Martin Marietta. Note taken.
Conclusion
With that we’ve wrapped up another episode of Special Situation Investing. We’ll see you all again in two week’s time.
Share this post