Last February, I bought a couple shares of this company, Renewable Energy Group ($REGI) at about $100/share. The stock was down 10% from its highs, it sounded like a cool company, and they’re based in the Midwest near where I live. Good enough for me to “buy the dip!”
It dropped another 20% within a week. But I’m no stop-loss trader, oh no, I am an investor! So, I bought one more share at 80.50, then one more at 76.50, then 68, then 66.75, then 57.75, then 52.50. It recovered and was relatively steady until August when it dropped even more.
By this point, I started doing serious DD on this company. Morningstar classifies it as an “asset” company. They have low debt, lots of cash. Book value around $33/share, so basically the value of their refineries. They were making a big expansion into renewable diesel which I learned is more lucrative than biodiesel (which relies on subsidies). So, there was some promise of growth. I started buying 2 to 3 shares at a time as it fell below $50 – half of what I originally paid.
I also heard about this site, openinsider.com and noticed a few insiders had recently bought – including the CEO and CFO. This was my only stock that had insider buying. The CFO bought at $55 and CEO at 50.
But it kept falling. Did I have an emotional attachment to the stock by this point? Sure. But now I had some information to back it up.
I bought ten shares in the $40s and ten more in the 30s, doubling down once again. My cost basis was now basically the same as the CEO’s last purchase. I planned to hold this company for years. I wanted to see the fruits of their renewable diesel expansion, their recent partnerships, and their acquisition of Amber Resources. I was in Peter Lynch mode thinking this is a 6-7 year hold, minimum.
But at the end of the day, I was down over 30%. I had just started dabbling in individual stocks last year, and here I am down over $600 on one small-cap spec stock. It was my heaviest bag, and it had been ever since I bought it one year earlier.
But I knew $49 was some kind of a benchmark with the insider buying, and their $33/share book value had to mean something.
And sure as shit, almost immediately after it dropped below $33, it jumped randomly after hours last Tuesday. I thought it was an error, but other websites showed the same thing. A Bloomberg article revealed REGI was “fielding interest” in a potential buyout. The next day it was over $40. Then on Friday after hours, it popped again to $58. The potential buyer was Chevron ($CVX) in an all-cash deal of $61.50/share. I listened to the conference call this morning with Chevron and REG CEOs, and it sounds like a done deal. REG CEO “CJ” Warner is also getting appointed to Chevron's board, which one Q&A caller asked why they’re giving up 1/12th of the board for such a small deal, and Chevron’s CEO enthusiastically supported CJ’s appointment saying her industry experience and knowledge of biofuels will greatly benefit the company. If you hold $CVX, I would be optimistic about this deal.
I just sold my shares today at 61.50 for a 23.4% gain, while VTI is up 6.6% over the same timeframe.
Moral of the story: If you take the time to do your DD and really understand the company – and if it’s a good company – you can be a bagholder and still come out ahead. Peter Lynch style.
I also want to shout out this sub r/stocks for being a part of what makes the stock market so interesting to me. Keep on keeping the discussion alive!
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