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.” That’s because 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…
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.”
That’s because 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 buy shares, or in other words, putting their money where their mouth is.
1. Nam Cheong Ltd (SGX: N4E)
Nam Cheong is one of Malaysia’s largest builders of offshore support vessels today.
What’s interesting about the company is that it operates on both a build-to-order and build-to-stock business model. The latter sees a vessel builder building new vessels and storing them as inventory in the hopes that buyers would emerge shortly.
Over the past two weeks, Leong Seng Keat, Nam Cheong’s chief executive, had bought shares on a total of three occasions (12, 13, and 16 May), spending over S$71,000 on 944,900 shares. With the purchases, Leong’s interest in Nam Cheong had increased from 4.612% to 4.657%.
Nam Cheong’s shares closed at S$0.08 each on Monday. In the company’s 2016 first-quarter earnings that was released on 12 May 2016, Nam Cheong reported negative revenue of RM93 million, a reversal from the positive revenue of RM327 million seen in the first-quarter of 2015.
In case you were wondering how revenue can be negative, Nam Cheong had a reversal of revenue from Perdana Petroleum Berhad’s cancellation of an Accommodation Work Barge; construction for the barge was already in an advanced stage when the order was cancelled. Nam Cheong also delivered just one vessel in the reporting quarter as compared to six in the first-quarter of 2015.
Consequently, Nam Cheong’s net profit came in at negative RM40.1 million, down significantly from the positive RM39.3 million seen in the previous year. The near-term future of the company looks dim as well, as Nam Cheong commented that “the outlook for the O&M sector remains weak and the Group anticipates that the progress of vessel sales and shipbuilding to remain slow.”
2. Heeton Holdings Limited (SGX: 5DP)
Heeton Holdings is a real estate company with interests in property development and property investments both within and outside of Singapore.
Some of the company’s residential development projects include DLV at Dalvey Road and The Element@Stevens at Steven Road. As for the investment properties, Heeton Holdings has interests in Tampines Mart, The Woodgrove, Sun Plaza and El Centro. It also has a stake in Mercure Hotel in Thailand.
On 10 May 2016, Heeton Holdings’ chief executive Eric Teng Heng Chew bought 70,000 shares for a sum of S$28,525. It’s the very first time that Teng had bought Heeton Holdings’ shares since he was appointed as chief executive of the company in January this year. The purchase gave him a 0.02% stake in Heeton Holdings.
The company’s shares closed Monday’s trading session at S$0.415 each. The company had released its 2016 first-quarter results recently on 6 May and reported a quarter of growth. Its revenue had nearly doubled from S$7 million a year ago to S$13.8 million and its profit had almost quadrupled from S$1.46 million to S$5.8 million. Unfortunately, its net asset value per share had declined from S$1.15 at end-March 2015 to S$1.05.
At the price of S$0.415, Heeton’s priced at 0.4 times its latest book value.
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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.