Simon Says: Follow Insider Buying and Selling

Sites like Barron's, GuruFocus and InsiderCow provide details of insider buys and sells. You must be aware that corporate officers and directors often receive incentive stock for free or executive stock options. Their trades are thus skewed to the sell side, as they let go of shares to avoid seeing their net worth and compensation becoming overexposed to the company they work for. That makes open market insider buying quite impressive. Due to that, I checked out Simon Property Group again. In this week's Barron's, shopping mall operator Simon Property Group showed up as the top buy measured by number of trades, not dollars invested year-to-date in 2022. All told there had been 18 discreet insider purchases for a combined $592,529 reported through June 30. The average cost for those shares was just north of $112 per share on a stock with a 52-week range of $93.20 (June 30, 2022) to $171.12 (Nov. 8, 2021). SPG closed on Friday July 8 at $97.69, well below the average cost paid by insiders this year. Note that insiders sold off huge stakes in both MongoDB and DoorDash this year, despite their dropping way down from 52-week peaks of $590.00 and $257.25 respectively. Neither of those firms has ever been profitable. The data below detail all SPG's insider trades since March. The last insider sale in SPG came more than two years earlier, on May 16, 2019, at $176.17. What is SPG really worth? Real estate investment trusts (REITs) like SPG trade more based on Funds from Operations (FFO) than on Price to Earnings ratios (P/Es). Simon's average P/FFO since 2012 ran about 15.8-times, accompanied by around 3.97% in yield. As of July 10, 2022 SPG's P/FFO was just 8.3-times and its current yield was a well above typical 6.97%. No wonder its insiders had been picking up shares. A reversion to a more typical P/FFO of 15-times this year's estimate suggests SPG could rebound to the mid $170s by early in 2023. My goal price is not far-fetched. Traders could unload SPG between $149 and $229 during each of the past eleven years. The REIT's FFO is now pretty close to its old all-time peaks when the shares fetched greater than $190. Reverse engineering the current $6.80 annual dividend calculates to a present-day fair value for SPG of $171.28. Yahoo Finance takes a somewhat conservative view on SPG yet still looks for $142.80 by this time next summer. Including dividends even that goal price would deliver greater than 53% from last week's closing quote. Why do I call Yahoo Finance's view conservative? It assumes SPG will still be available for just 11.9-times their own 2023 FFO estimate. That is way below the company's historically typical valuation. Independent research house Morningstar assigns SPG its highest, 5-star buy rating. Its present day fair value estimate for SPG sits at $160, a full 64% above last week's price. Note, too that management earned a rarely award exemplary rating for capital allocation. SPG now trades well into 5-star territory which was triggered once the stock ventured south of $112. Options-minded traders can nibble at the edges to benefit from SPG's bargain price via naked put sales out to Jan. 19, 2024. Selling $100, to $120 strike price puts for that 18-month time horizon was bringing in juicy options premiums with SPG at $97.69 while still providing nice downside protection. Worst-case, forced purchase prices dropped to from $79.55 to $86.89 on the $100, $110 and $120 strikes respectively. Future stock market action can never be guaranteed. That said, owning SPG at the if exercised price of even the most aggressive of those option sales would have been a winning position 100% of the time dating back more than 15-months. Maximum profit on these, or any other option sales always equals keeping 100% of all premium received upfront. In these examples that would be either $2,045, $2,660 or $3,311 per each 100-share commitment depending on the strike price(s) employed. Simon Property Group offers excellent total return potential with very high income while you wait for the next good pop. I wrote this article on July 10 with SPG at $97.69. As of 10:14 AM on July 11 it had dipped back to $96.69 making it an even better value. Buy some shares, sell some LEAP puts or consider doing both.

Simon Says: Follow Insider Buying and Selling

Let's see how trading action from insiders can show you a lot about a stock, using Simon Property Group as an example.

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