May 3, 2018
The Insider Report

TRADE ALERT

In late November, we issued a buy recommendation on Great Elm Capital Group(GEC). It has traded sideways ever since so we are issuing a sell recommendation to close out the position.

We will be putting those dollars to better use in our newest pick, Anixter International(AXE).

Anixter is a leading distributor of network, security and utility power products and services.

The company financials are rock solid. 

Sales and equity have increased an average of 6.9% and 7.6% per year respectively for the last 5 years.

And the stock, by all traditional metrics, appears to be on sale. 

It trades at just 1.37X book value and less than 10X forward earnings.

The chart above shows Anixter’s price/book ratio for the last 25 years.

As you can see, the stock is trading near the bottom of its historical range.

Earnings are also consistent.

Analysts are projecting $6.43 per share over the next fiscal year which is huge given the stock's low $60 price tag.

So if the company is doing so well, why is it so cheap?

Well... two reasons. 

The first occurred in October. Weaker than expected earnings combined with the fear of new competition from Amazon gave AXE a 26% haircut.

But the Amazon fears were overblown. Hedge fund manager John Rogers commented:

“Most of the revenues for Anixter originate from projects. While price competition shrinks margins, the services performed are far from expendable, creating a layer of costs and expertise that Amazon would find difficult to replicate or improve upon. The projects themselves reach the distributors through powerful independent representatives, which creates more barriers to entry. In sum, we believe the Amazon announcement does not represent a substantive change in its narrative or Anixter’s business, but rather an increase in market attention given to these topics. We also think Anixter is poised to deliver strong earnings in 2018, as the company is likely to be a prime beneficiary of structural tax reform.”

The market came to the same conclusion, and the stock made a full recovery.

But last week it took another hit. 

The company reported earnings of $1.16 per share, just 14 cents below analyst estimates.

It was a small miss but the market overreacted, sending the stock down by 26%.

And insiders are jumping on the opportunity to buy at these low prices.

Four executives have bought in the last three days, and I wouldn’t be surprised if we see more over the coming week. 

Analysts have a price target of $79.33 for AXE which is 32% above current prices.

This is in line with our projections as well.

Based on its historic price/sales average of 0.35, the stock should be worth roughly $82.25 today.

And with bullish forecasts for the future, that figure should soon be much higher.

We recommend following the insiders and picking up shares of AXE while it’s on sale.

Action to Take:  Buy Anixter International (AXE) at the market. Use a protective stop at $51.00.

Speculators may consider the AXE Nov18 $70 calls (.AXE181116C70).These options have very little volume, so be sure to use a buy limit order. The current bid/ask spread is 2.30 x 2.55 so try not to pay more than $2.75.

Action to Take: Sell Great Elm Capital Group(GEC) at the market.

If you have questions, feel free to shoot us an email: support@hubertsenters.com.

All the Best,

Ross Givens

Editor, The Insider Report