It’s no fun being a contrarian when investors are fleeing retail stocks on worries about the damage Amazon.com is doing to this sector.
Case in point: Late last May I liked Advance Auto Parts
at around $134, on weakness that had taken the stock down 21% for the year at that time, compared to a 7% gain for the S&P 500
The car parts retailer offers guidance on how to make repairs and loans out specialized tools. These services seemed to offer some Amazon
immunity since they’re tough to replicate online. Moreover, when cars break down, drivers often need parts right away.
What’s more, Advance Auto Parts CEO Tom Greco and four directors had just bought $2.7 million worth of stock. For good measure, activist Starboard Value had just picked up $47 million worth of shares. Advance Auto Parts seemed like a retailer to own — or so I thought.
Bad call. By this week, Advance Auto Parts shares were down another 29% to trade under $95. It’s been the same story with plenty of retailers that looked like “bargains” on “overblown” Amazon.com fears.
Whenever there’s a broad sector-wide move by insiders, it’s worth a closer look
What’s different now is that company insiders really swooped in to troll the wreckage for buys after retailers took another leg down on Amazon.com worries over the past month. Whenever there’s a broad sector-wide move by insiders, it’s worth a closer look.
There’s certainly been a lot of wrecked retailers to troll. As of September 20, the S&P Retail Select Industry Index was down 7% this year, while the Dow Jones U.S. Select Retail REIT Index was off 13.5% — compared to a 13.7% advance for the S&P 500, according to S&P Dow Jones Indices.
In the past month insiders bought $100,000 worth or more worth of shares at the following consumer-focused companies: Macy’s
, AMC Entertainment Holding
, J.C. Penney
, Fossil Group
, Lands’ End
, Hibbett Sports
, Build-A-Bear Workshop
, Sprouts Farmers Market
, Regal Entertainment Group
, Dick’s Sporting Goods
Sally Beauty Holdings
, and Party City
The insiders are telling us that any of these names may do well from here. But three stand out, in part because insiders recently added more to their existing positions.
There was interesting follow-on buying of Macy’s shares in late August by two directors, at around $20.55. This comes after June buying at $22.95 by CEO Jeffrey Gennette. He’s overseeing a mini-turnaround that has Macy’s changing up its game to face the Amazon.com threat. One of the dynamics I look for at my stock letter is insiders buying into their own turnaround, and that’s the case here.
Macy’s is seeing some success with its discount “Backstage” concept, and marketing initiatives in women’s shoes and jewelry are also panning out. Macy’s met expectations for the second quarter, on August 10, and maintained guidance, an encouraging sign. The company plans to launch a new loyalty program and a new marketing strategy soon, and it is working on boosting digital and mobile-based sales. The stock looks cheap, with a forward price-earnings ratio of around 8.
Toy-maker Mattel faces serious challenges as kids migrate big time to digital entertainment on smartphones. The Toys ‘R’ Us bankruptcy earlier this week does not help with sentiment.
But Mattel won’t easily give up. It is under new management lead by CEO Margo Georgiadis. She was previously the president of Google’s Americas. So presumably she has a clue about how to bring Mattel into the modern world of digital entertainment. An obvious avenue will be to develop more content-driven products. The company is also reducing costs, establishing joint ventures in China, and working on digital collaborations with the likes of Alphabet
, Alibaba Group Holding
Keep in mind that along with competitor Hasbro
, Mattel is one of the largest players in the toy industry. So it is a preferred licensing partner for entertainment companies. This summer Mattel took over the licensing deal for Jurassic World, the 2015 movie from NBCUniversal, which is part of Comcast
Also remember that it always takes awhile for new managers to make changes. Turnarounds are slow. But insiders buying into turnarounds can be a good combination, and that is what we have here. The CEO herself made a sizeable purchase at $19.61 a share in early August.
3. AMC Entertainment
As a movie theater chain, AMC Entertainment seems like it will get hurt bad by streaming entertainment offered by Amazon.com, Netflix
Yet while it’s nice to stream movies in your living room, theaters offer an experience movie fans can’t have at home. And the theater-chians are getting better at it. AMC has been upgrading its theaters. Aside from improving sound and sightlines, AMC is rolling out plush, push-button reclining seats that offer more personal space, leg rests, and seats that vibrate with the action on screen. The company is also upgrading food and beverage offerings.
AMC takes a hit on the number of seats with these upgrades. But it fills more seats during the mid-week. And it attracts more adults who tend to spend more. In these upgraded theaters, admissions were up 5% during the second quarter vs. an 11% decline in theaters that have not been renovated. This confirms that the renovation strategy makes sense. As of the end of June the company had recliner seating at about 2,300 screens, and it hopes to convert another 350 by the end of the year.
The company is also expanding ticket sales to more online venues like Fandango, Movietickets.com, Flixster and Atom Tickets, as opposed to just its own website, and offering reserved seating at busier theaters.
Meanwhile, AMC could net $100 million through land sales, and more cash via sales of its stake in National CineMedia
There was continued insider buying at AMC throughout the summer, even as the stock rose from its August lows, and a sizeable $552,000 follow-on purchase by CEO Adam Aron at $15.79 in mid-September.
But what about Advance Auto Parts? Sadly for bulls, no follow-on insider buying here yet. But there’s no selling either. And Zain Akbari, an analyst at investment researcher Morningstar, stands by his bullish call. He has a five star rating on the stock, Morningstar’s highest rating. Notes Akbari: “We believe the firm’s ability to turn around operations and deliver long-term returns is intact and makes the shares attractive,”
At the time of publication, Michael Brush had no positions in any stocks mentioned in this column. Brush has suggested M, MAT, AMC, JCP and DKS in his stock newsletter .