Weekly Update: Free Insider Stock Pick
Good evening, and welcome to this week’s edition of Stealth Trades!
This week, I am doing something I have never done before.
I am giving away all the details of our newest insider stock pick.
This alert was sent to members of the Insider Effect trading service on Friday morning.
It is not something we will be doing again. But I wanted you to see the depth of our research (and potentially make a few bucks alongside us).
The full details are below…
BUY ALERT 07/26/24
Douglas Elliman (DOUG)
Douglas Elliman (DOUG) is a real estate brokerage and services company based out of New York. Starting out as a basement store on Madison Avenue in 1911, the company changed hands multiple times before being acquired by the Vector Group – a diversified holding company.
At the end of December 2021 – at the height of the bull market – the Vector Group spun off DOUG as its own public entity.
Unfortunately, mortgage rates rose dramatically after the IPO, and the stock was punished in a big way.
The real estate business, especially the mortgage and brokerage side, are directly affected by interest rate changes. So, it is no surprise that the fastest rate hike cycle in history led to a severe decline in DOUG’s stock price.
The chart below shows the inverse correlation between mortgage rates on top and DOUG stock underneath.
But the opposite is also true…
Significant rate cuts, like the ones the market expects from the Fed over the next 18-24 months, should positively affect companies like Douglas Elliman.
Which is why we were excited to see a large cluster buy from company insiders this month.
On July 9th and 10th, four insiders acquired 680,148 shares of DOUG for a combined personal investment of just over $780,000.
This is the most significant insider buying activity in the history of the company, and it took place in just 48 hours.
Chairman & CEO, Howard Lorber, made his largest purchase since 2022.
So did Richard Lampen, the company’s Chief Operations Officer and Director Michael Liebowitz.
Mark Zeithchick’s back-to-back buys were his first ever.
The real estate brokerage industry is going through tough times. Mortgage rates surged from 2.6% in 2021 to nearly 8% – shrinking demand for already unaffordable homes.
Things are not much better on the commercial front.
The table below shows the decline in commercial real estate transactions over the last two years.
Throw into the mix a landmark antitrust suit against the National Association of Realtors, and it’s been rough sailing for the industry.
But, as usual, insiders know more than us. They have access to better information. And they have a history of making well-timed buys before positive company or industry-wide news.
Odds are the decline in DOUG stock is overdone. The market has a tendency to overreact to bad news, and share prices often fall well below fair value.
Based on insider activity, that appears to be the case today.
From a technical perspective, the stock appears to have bottomed out in June.
After a significant decline like we have seen here, we like to see a stock “carve out a bottom” off the lows. This represents accumulation by large investors as short sellers are shaken out and firms buy up as much stock as they can at discounted prices.
I have drawn out this formation in white on the daily chart below:
In my experience, it is rare to see large insider cluster buys near the lows for no reason. Whether executives expect to announce company-specific news that will benefit the stock price or are simply taking advantage of discounted prices is yet to be seen.
But this activity seems highly opportunistic to me.
Factor in the rotation into small-cap stocks we’re seeing right now, and we believe it prudent to take a position in this low-priced stock alongside the insiders.
Action to Take: Buy Douglas Elliman Inc (DOUG) stock at the market. Then place a sell stop order at $1.10 to risk 17% on the trade.
Speculators may consider the DOUG Oct18 $2.50 call options (.DOUG241018C2.5).
To learn more about the Insider Effect trading service, click here to watch this week’s webinar where I outline the entire strategy.