One of the more commonly used strategies by investors is to follow insider transactions. That’s something even the legendary super investor Peter Lynch did.
In his book One Up on Wall Street, Lynch shared investing checklists that he had used and one of the criteria was this: “Whether insiders are buying and whether the company itself is buying back its own shares. Both are positive signs.”
Consistent insider purchases may indicate that a company’s management thinks that the stock is undervalued. They could be wrong of course, but companies that have seen insiders buy shares consistently are still worth some further research.
Meanwhile, it’s worth noting that insider selling need not mean that bad news about the company is around the corner – there are many reasons why insiders may want to sell.
With these in mind, let’s take a look at two companies that have recently seen insiders buying shares, or in other words, putting their money where their mouth is.
1. Kim Heng Offshore & Marine Holdings Ltd (SGX:5G2)
Kim Heng has amassed over 40 years of experience as an integrated offshore and marine value chain services provider. The company, which has two shipyards that are located in Singapore, sees itself as a one-stop shop for customers with its wide range of products and services including offshore rig repair, maintenance and refurbishment, as well as painting and blasting works.
Thomas Tan, Kim Heng’s chairman and chief executive, had recently bought a total of 450,000 shares on three occasions (23 March, 24 March, and 28 March) for a sum of nearly S$41,000. The transactions had increased his total interest in his company from 42.51% to 42.57%.
Kim Heng’s latest financials was for the calendar year 2015. It was a gloomy year for the company as its business was affected by the decline in the price of oil – revenue fell by 34% and the bottom-line sank into negative territory. Kim Heng’s shares closed at S$0.09 yesterday, after falling by nearly 30% over the past year. At the share price of S$0.09, the company’s valued at just 0.7 times its book value.
2. GL Ltd (SGX: B16)
GL, which was previously known as GuocoLeisure, could be seen as a conglomerate given its business interests in diverse areas such as hotel management & operations, gaming, oil & gas, and property development, among others.
Currently, the company is the largest hotel owner operator in London with over 5000 rooms across 17 hotels and six brands. These brands include Clermont Hotels & Residences, Amba Hotels, every hotels, Guoman Hotels, Thistle, and Thistle Express.
The investment vehicle of Quek Leng Chan has been busy buying shares of GL on a number of occasions since March 2016. Quek is GL’s non-executive chairman. All told, Quek’s investment vehicle had bought 825,400 shares of the company for a sum of around S$714,000. The various buys had pushed up Quek’s stake in GL slightly from 67.34% to 67.4%.
GL’s shares closed at S$0.88 yesterday. At that price, the company has a trailing price-to-earnings ratio of 11.9.
The company’s latest results (for the six months ended 31 December 2015) was a little of a mixed bag. While revenue saw a minor 1% dip to US$229.8 million, net profit had soared 63% to US$51.3 million. The earnings jump was mainly due to a one-off compensation received from the cessation of management of 19 regional Thistle Hotels that are owned by a third party.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.