After year-to-date net losses in all three major indexes, it’s fair to say that 2022 is not 2021. Last year saw the sustained, long-term gains that keep investors comfortable. That all came to a crashing stop early in the new year.
However, while volatility has increased in recent weeks, the sharp losses that characterized January have moderated somewhat in February. There’s a feeling that the markets are starting to price in the chief headwinds – rising inflation and the prospect of Fed rate hikes starting in March.
What this means for investors is easy to sum up: opportunity. Markets are just above their recent bottom, and plenty of stocks are still trading at bargain prices.
And that leads to the logical next question, which stocks to pick up? The average retail investor will need a signal, some indicator of a stock’s quality, in order to sort out the wheat from the chaff – and find those bargain prices that are ready to gain.
One popular signal is the trend of insider buying. Insiders are corporate officers; their company positions give them a deeper view into corporate inner workings, and potentially greater insight into corporate prospects. They quite naturally use this insight in their trading, and their published trades can give a clear hint toward their companies’ near term outlook.
The Insiders’ Hot Stocks tool, from TipRanks, has the filters and sorting options investors need to make sense of the market’s insider trading. We’ve used it to pull up two stocks that have seen recent ‘informative’ action from the insiders – and that are trading at bottom-level prices. Here are the details.
2U, Inc. (TWOU)
We’ll start in the educational sector. 2U is a tech company offering an array of niche-specific software and tech products to the post-secondary education sector. Specifically, 2U’s products include digital coursework design, infrastructure support, and online platforms for universities and non-profit colleges. 2U’s product line is offered as software, and on the popular SaaS subscription model.
2U was an early entrant into the world of online education – it got its start more than a decade ago – and since then has built up a large network. The company works with more than 85 universities to offer over 550 academic courses – and more than 380,000 students have used 2U’s products over that time. In its most recent expansionary move, 2U this month announced a partnership with Australia’s University of Sydney to offer postgrad degree courses online. When complete, the course will offer up to four Master’s degrees for online students. The degree courses will become available in February of next year.
Last week, 2U released its numbers for both Q4 and full year 2021. At the quarterly level, the company reported $243.6 million at the top line, up 13% year-over-year. The adjusted net loss for the quarter deepened, from $10.8 million to $14.9 million. Per share, the EPS loss grew from 6 cents to 20 cents yoy.
Full year numbers were better. Revenue grew 22%, to $945.7 million, while the company’s total net loss situation improved by $21.7 million. At $194.8 million, to full-year net loss was $2.61 per share.
2U’s shares have been falling steadily for the past 12 months; the stock is down 80% in that period. However, while the shares are down, the insiders are making purchases. Of those purchases, two, by CEO Christopher Paucek and director Paul Maeder, are considered informative. Last week, Paucek spent $251,026 on 26,040 shares, while Maeder bought 110,000 shares for $1.037 million.
This stock has also caught the attention of Needham 5-star analyst Ryan MacDonald who sees 2U positioning itself for future gains.
“2022 is setting up to be a year of transition for the business as edX is integrated and the company works through program launch delays and the wind-down of a margin-dilutive hybrid program with Simmons University. This, combined with difficult comps in 1H22, will result in a deceleration of topline growth to the low-to-mid teens in 2022, we estimate. Despite this projected growth slow-down and an expected $30mm – $40mm EBITDA headwind from edX, 2U still expects to deliver positive adj. EBITDA and EBITDA margin expansion in FY22. When combining this with the discounted valuation of 1.8x estimated FY22 revenue, we believe the risk/reward is attractive and view the sell-off as a buying opportunity,” MacDonald opined.
These comments support MacDonald’s Buy rating, and his $28 price target suggests an impressive 163% one-year upside potential. (To watch MacDonald’s track record, click here)
So, that’s Needham’s view, how does the rest of the Street see the next 12 months panning out for 2U? Based on 6 Buys and 4 Holds, the analyst consensus rates the stock a Moderate Buy. The stock trading price is $10.79 and its $27.11 average price target is decidedly bullish, implying a 12-month upside of ~152%. (See 2U stock forecast on TipRanks)
Adtalem Global Education (ATGE)
Next up is Adtalem, a for-profit higher education provider with a focus on healthcare education. The company provides services and coursework through 9 institutions on 27 campuses, and has a presence in over 200 countries. Adtalem is the parent company of several for-profit schools, including American University of the Caribbean School of Medicine, Becker Professional Education, Chamberlain University, EduPristine, OnCourse Learning, Ross University School of Medicine, Ross University School of Veterinary Medicine and Walden University. That last is Adtalem’s most recent acquisition, with the purchase completed in August of last year for a total transaction value of $1.48 billion.
The Walden acquisition was only one of several major changes that Adtalem is undertaking. The company announced in January that it had entered into an agreement to sell off its Financial Services segment. The buyer, a Wendel Group and Colibri Group consortium, will purchase Adtalem’s Financial Services for $1 billion in cash, with the transaction closing in 3Q22.
In the meantime, Adtalem is dealing with a recent fall in its stock price. The company released fiscal 2Q22 results on February 8, and saw its shares fall 12% in the immediate aftermath. Overall, the stock is down 47% over the past 12 months.
The actual quarterly results were mixed. Revenue was up 58% year-over-year, to reach $371.2 million. However, analysts had expected the top line to reach $419 million. At the same time, earnings per share fell sharply – and also missed the forecast. EPS came in at 78 cents, flat from the year-ago quarter and well below the 96 cents expected. Management pointed to lower course enrollment during the pandemic crisis as a contributing factor to the company’s underperformance.
Not everyone is downbeat, however. There was one major insider trade, when Michael Malafronte, of Adtalem’s board of directors, purchased 40,500 shares at more than $23 each. His total purchase price was $954,990, and his current stake in the company is worth $2.34 million.
Alexander Paris, of Barrington Research, also sees Adtalem in position for future returns, and writes: “With the recent completion of the accretive Walden acquisition (August 12) and the pending divestiture of the Financial Services segment, ATGE will become a pure-play healthcare education provider with the scale and capabilities to capitalize on the robust and durable demand for skilled healthcare professionals. While there continue to be near-term challenges, primarily due to the impact of COVID (e.g., tough comps, student fatigue and reopening expense), we believe these headwinds will subside over time and that demand for healthcare professionals will continue to outpace supply for the foreseeable future.”
Paris’ comments back up his Outperform (i.e. Buy) rating on the shares, while his $40 price target implies ~89% upside for the year ahead. (To watch Paris’ track record, click here)
Looking at the consensus breakdown, 1 Buy and 2 Holds have been published in the last three months. As a result, ATGE gets a Moderate Buy consensus rating. Given the $31.67 average price target, shares could rise 49% in the next year. (See ATGE stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
