Buying bad news stocks: blockchain, autos and oil sands

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(Update - elaborates on A Units ownership of the operating entity in paragraph 5) Canadian stocks made their lows for the year on December 24th, right near the end of tax loss selling. Let's take a look to see which insiders were buying around that low. Below are the five individual insiders who have reported the most buying in the public market on a direct holdings basis.

I have picked direct holdings because these are holdings that are usually beneficially held for the direct benefit of the insider, not a family member, trust, fund or some other entity. Consequently, such trades are likely motivated by the desire to make some money. Other holding types can potentially reflect other objectives, particularly when it comes to control or direction holdings (such as needing to deploy cash in a fund to meet investment policy requirements).

Of course, individual investors need to keep their own time horizon and risk tolerance in mind when assessing an insider trade because the insider's situation may be quite different.  With that in mind, we see the theme of buying bad news stocks is in fashion with insiders as we close out 2018.

Top 5 individual insider buyers Dec. 17th to 28th ($ millions, direct holdings only)

  1. Michael Novogratz buys $4.1M Galaxy Digital Holdings (GLXY)
  2. Linda Hasenfratz buys $2.3M Linamar (Sunny; LNR)
  3. Peter Marrone buys $2.1M Yamana Gold (Mostly Sunny; YRI)
  4. Steven W. Williams buys $2.0M Suncor (Mostly Sunny; SU)
  5. Robert F. O'Neill buys $1.6M American Hotel Income Prop. REIT (Mostly Sunny; HOT.UN)

I had not heard of Galaxy Digital Holdings until I ran this screen. The company is headed by Michael Novogratz, a former Principal and Chief Investment Officer of the Fortress Macro Funds, and a former Partner at Goldman Sachs (Mixed; GS). The Wall Street Journal characterized Mr. Novogratz as one of the street's biggest stars until his macro fund was shuttered in 2015. GLXY invests in blockchain and cryptocurrency assets.

Are bad news blockchain stocks ready for a New Year bounce?

Galaxy Digital raised about $305 million at $5 per on February 14th before it made its TSX Venture debut on August 1st. With the private placement hold coming off June 15th just as blockchain stocks crumbled, it is not a big surprise to see GLXY being hit with an avalanche of tax loss selling. As of Friday's close of $1.08, the stock is off 78% from the private placement price, and 55% over the past 3 months. The stock has a reported market capitalization on our site of about $68 million, but that does not include the large number of B Units that are essentially exchangeable into Common Shares and lead to the issance of equivalent A Units which appear to represent the common equity in the company. A Units outstanding are essentially equal to the ownership interest of Common Share holders in the operating company (so generally as the number B Units goes down on exchange, the number of A Units should go up). As of the September 30th Q3 financials, there were 62,635,033 Class A Units and 215,884,410 Class B Units outstanding (both of the operating company). The B Units do not trade, so the float of 62,597,019 shares as reported on the INK site remains relevant. Mr. Novogratz owns 213,696,000 of the B Units. The operating company also had US$90 million in cash, US$123 million in cryptocurrency trading assets, a number of blockchain investments and little debt. In fact, its biggest liability was US$32.5 million in digital assets sold short. For crypto-contrarians with high tolerance for risk and wild rides, this stock is probably worth checking out.

INK Canadian Insider member Linamar has seen more insider buying. The auto parts maker stock dropped 39% over the past year as bad news was priced into global auto stocks. After the 2018 drubbing, Linamar now sports a trailing 12-month P/E of 4.95. Everyone loves a bargain, until it's a bargain.

We wrote about Steven Williams, CEO of Suncor, buying in our December 24th Morning INK report. Will Christmas Eve mark the low in Canadian oil & gas stocks? The likelihood is increasing that the date represents a near-term base of support for this group of stocks which have been served a pipeline of bad news during the year.

I wrote about CEO buying at American Hotel Income Property REIT in a blog post on December 18th. The REIT slid into Christmas, getting down to $5.80 intraday on December 24th. As the stock continued to slide, insiders continued to buy. A key question for investors is whether or not the REIT will be able to swim against the tide of tightening credit spreads. A bet on HOT.UN, is not only a bet on management being able to execute on their strategy to keep distributions going, but also on the Fed letting go of its tight grip on monetary conditions to potentially give credit spreads some breathing room, at least temporarily.

Finally, investors greeted Yamana Gold's Q3 results reported October 25th as bad news in light of cashflows from operating activities falling to US$86.6 million from US$135.8 million a year earlier (all before net changes in working capital). Investors took little comfort from management's finger pointing at lower commodity prices as the culprit. The stock dropped to as low as $2.66 in the weeks following the news. However, insiders seem to be more focused on the good news, which included higher gold production and lower all-in-sustaining-costs guidance. Perhaps positive gold price momentum will put investors in a better frame of mind towards the stock come the New Year.

If you are interested in seeing which other insiders have been buying in the sell-off, head to the INK Research Canadian stock screening page, select code 10 (public market) as your Transaction Nature criteria along with your time frame. Remember also to select Group Results By: Insider.

This post first appeared on INK Research. The INK morning report is distributed to Canadian Insider Club members and INK Research subscribers every trading day. INK Edge outlook ranking categories (Sunny, Mostly Sunny, Mixed, Cloudy, Rainy) are designed to identify groups of stocks that have the potential to out- or under-perform the market. However, any individual stock could surprise on the up or downside. As such, outlook categories are not meant to be stock-specific recommendations. For background on our INK Edge outlook, please see FAQ #5 at

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