Politicians are at the forefront of new regulation approval, policy changes and have a general feel for the headwinds facing certain industries. Therefore, they are deemed to be people of influence. As such, it is a legal requirement for politicians to disclose when they buy and sell stocks.
While politicians often have differing motiviations for investing in stocks than professional value investors, this information can be useful to see which stocks these figures of influence are bullish on. This also has the benefit of providing unique insight as a starting point for further research.
The information regarding politician buys and sells comes from regulatory filings with the Securities and Exchange Commission. According to the STOCK Act, which was passed in 2012, members of Congress are required by law to file any stock trades with the SEC within 45 days. It is to prohibit members of Congress and employees of Congress from using private information derived from their official positions for personal benefit, and for other purposes. The bill also applies to all employees in the Executive and Judicial branches of the federal government.
Analog Devices
Analog Devices Inc. (ADI) has recorded a total of four purchase transactions in the past three months among politicians. The majority of the trades have been by Congressman Jared Moskowitz of Florida.
What does the company do?
Analog Devices is a semiconductor company specializing in the design, development and manufacturing of analog and digital signal processing integrated circuits.
Its product applications include automotive, consumer electronics and communications equipment.
One of its most innovative products is a gigabit multimedia serial link (GMSL). This is the “freeway” which will enable smart and automotive vehicles to communicate with infotainment, the cloud and much more.
Its other solutions include a 3D time of flight LIDAR camera system, which enables industrial robots in warehouses to easily assess a package's size as it moves along a conveyor belt.
Growing financials
Analog Devices reported strong financial results for the second quarter of 2023 on May 24. Its revenue of $3.26 billion beat analyst forecasts by $56.75 million and rose by 9.79% year over year.
This growth rate was not as fast as the 21% reported in the prior quarter and the 79% growth reported in the previous year. However, the business still reported strong results overall given the cyclical pullback in the semiconductor industry.
Part of Analog Devices' positive results have been driven by its strong presence in the stable and growing health care industry. The company has become a leader in medical imaging, with strong market share in the devices which make up x-ray machines, ultrasound and CT scanners.
In addition, its products help with instrumentation such as ventilators and defibrillators, which became vital during the pandemic. Personal health monitoring is another growing trend the company is poised to benefit from. Wearable health care devices require low power consumption and high performance, which is perfectly suited to Analog Devices' chips.
The company also reported solid 16% growth in its aerospace and defense solutions, which is also not as cyclical as consumer segments. Its automotive segment contributed to 24% of total revenue and grew 24% year over year.
Communications was an area of weakness as its consumer applications declined by 20% quarter over quarter due to the cyclical environment.
Moving onto profitability, its gross margin was a solid 73.7%, which was up slightly versus the prior quarter.
Its operating margin was a solid 35%, with $1.1 billion in operating income generated up 19.35% year over year.
The business reported earnings per share of $1.92, which beat analyst forecasts by 9 cents.
Over the trailing 12 months, Analog Devices has generated a staggering $4 billion in free cash flow, or approximately 31% of revenue, which is fantastic.
The company also reported $1.2 billion in cash and cash equivalents on its balance sheet. The business does have fairly high total debt of $6.7 billion, but the majority is long-term debt.
The business pays a consistent forward dividend yield of 1.83% and has been buying back shares.
Valuation
Analog Devices trades with a price-earnings ratio of 27, which is higher than the average of 25 for the sector. However, it is 25% cheaper than its five-year average.
The GF Value Line indicates a fair value of $212 per share. Based on its historical ratios, past performance and analysts' future earnings projections, the stock is fairly valued at the time of writing.
Simon Property Group
Simon Property Group Inc. (SPG) is a real estate investment trust that focuses on buying, developing and managing properties in the retail sector, including shopping malls, premium retail outlets and mixed-use developments.
Its famous properties include The Mall of America in Minnesota, which is one of the largest malls in the U.S. In addition, the business owns The Forum Shops at Caesars Palace, Sawgrass Mill in Florida and even Bicester Village in the U.K.
The stock was purchased multiple times in the past three months by Victoria Spartz, a representative from Indiana.
Solid financials
Simon Property Group reported financial results for the first quarter of 2023 on May 2. Its revenue of $1.35 billion beat analyst forecasts by $84 million and rose by 4.24% year over year.
This was a solid result given the many challenges brick-and-mortar retail outlets have faced since the lockdowns in 2020. The continued growth in e-commerce also makes these outlets optional as opposed to necessary.
Despite these challenges, Simon Property Group reported a strong occupancy rate of 94.4%, which increased by 110 basis points year over year. Its average base minimum rent was $55.84 per square foot, rising 3.1% year over year.
The company has built up strong momentum with its leases, signing 1,200 in the first quarter for a total of 5.9 million square feet. The business also reported a strong rebound in its tourist-focused centers. In addition, it opened a new West Paris Designer Outlet in Normandy, France, which indicates the demand for these type of outlets is still strong.
Simon Property Group is currently constructing another high-end outlet in Tulsa, Oklahoma, which it expects to open by the fall of 2024. Its total pipeline includes around 2,000 residential units and hotel rooms across various projects.
The REIT reported strong operating income of $662 million, which rose by close to 7% year over year. Its cash and cash equivalents rose to $1.5 billion, up from $621 million in the prior quarter.
Its total liquidity was a solid $9.3 billion, which includes a $5 billion revolving credit facility that adds increased flexibility.
As a REIT, Simon Property Group pays a strong dividend of 3.32%, or $1.85 per share, up 9% year over year.
Valuation
The stock trades at a price-to-funds from operations ratio of 9, which is 25% cheaper than its five-year average. Further, its price-to-adjusted funds from operations ratio of 10 is 31% cheaper over the same period.
In addition, the company's price-to-cash flow ratio of 9.45 is 18% cheaper than its historic levels.
The GF Value Line also indicates a fair value of around $120 per share. Therefore, the stock is fairly valued at the time of writing.
Final thoughts
Both Analog Devices and Simon Property Group are high-quality companies that politicians have been buying. Analog Devices is uniquely positioned to continue to grow despite a macro pullback in the semiconductor market as a whole. Simon Property Group is also an interesting business. At a macro level, I would assume it would be struggling due to macro headwinds. However, management's execution and its popular tourist locations have debunked this expectation.
Originally published on GuruFocus.com
