Insider buying is interesting because it highlights stocks bought by people who know the most about a business. Insiders buying small-cap names are more interesting because of the outlook for interest rates. The FOMC is set to begin lowering rates this year and, if all goes well, will spark an economic shift to reinvigorate business for smaller companies. The idea is that lower rates will ease business and consumer headwinds, driving top-line growth and margin expansion.
Today’s takeaway is that the stocks on this list are beaten down, trading near long-term lows, but have sell-side support in addition to insider buying, set up to rebound and move higher over the next few years.
Grow Generation Banks on Rescheduling Cannabis
Grow Generation (NASDAQ: GRWG) is the largest supplier of hydroponic growing equipment in the U.S. At face value, it is a play on the US agricultural scene, but it is really a play on cannabis and one that is struggling in 2024. The business is contracting by double-digits and is unlikely to resume significant growth without a change in the fundamental outlook.
A change in the fundamental outlook may come soon due to the DEA's review of cannabis. The DEA is considering rescheduling cannabis to a lower category on the controlled substances list, effectively decriminalizing it at a national level. The caveat for investors is that decriminalizing cannabis may spur industry growth but is not guaranteed. The DEA is reviewing the data but delaying hearings, leaving the final decisions for some unspecified future date.
Grow Generation insiders are not deterred. Insiders are banking on a return to growth and decriminalized cannabis with significant stock purchases. Four insiders, including two directors, the CEO, and the president, purchased in Q3. This is important because it is the first insider activity since Q4 2023, when there was also a spike in buying.
Insiders own about 7% of this stock and institutions, which are also buying in 2024, own another 35%. Five analysts rate it as a Hold and view it as a value, trading beneath the lowest target tracked by Insidertrades.com.
eHealth, Inc. Outperforms and Raises Guidance
eHealth, Inc. (NASDAQ: EHTH) operates as a health insurance marketplace connecting consumers and insurers while providing ancillary services to both. The company contracted in Q2 but outperformed its consensus forecasts and raised guidance for the year. Full-year guidance implies growth and broader margins above the consensus forecasts and may be cautious given industry trends. Industry trends include a mass transformation related to AI, driving internal efficiency and optimizing outcomes.
Insider activity includes purchases by three executives, including the CEO, CFO, and COO. Their activity is noteworthy because it is the first in a year and the most spent in more than two years, and insiders have only bought for nearly two years. Their holdings top 4% of the stock, compounded by institutional activity. Institutions own about 80% of the stock and are buying on balance in 2024. Analysts rate this stock at Hold but have lowered their price targets significantly, suggesting another double-digit downside move is possible.
Orion S.A.: Operates in the Black and Pays You to Own It
Orion S.A. (NYSE: OEC) is a Luxembourg-based materials company that produces carbon black. Carbon black is elementally pure carbon achieved by partially burning feedstocks, including petroleum by-products. It is critical to making black paint, ink, tires, and other rubber products. Its business is growing, if slowly, but it produces profits, which are critical to the outlook. The company uses its profits to reinvest and pay dividends, which are small but sufficient to drive value for investors.
The distribution was cut during the COVID-19 pandemic and has yet to regain its former levels, suggesting aggressive increases could begin soon and provide a catalyst for upward share price movement.
Orion’s CEO, CFO, and a director have been buying this year. Their activity marks the largest purchases by insiders since early 2022, and has total ownership above 4%. Their activity is offset by the institutions that have bought on balance this year but shifted to selling in Q3. Institutional holdings are a strong 95% of the stock so their selling is a headwind for the market. Analysts rate it as a Hold and see it advancing 10% at the low end of their target range, about 40% at the consensus.
