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, eating more of their own cooking.
1. UOB-Kay Hian Holdings Limited (SGX: U10)
UOB Kay Hian was formed in 2000 when Kay Hian Holdings and the stock broking businesses of United Overseas Bank Ltd (SGX: U11) were merged.
Headquartered in Singapore, the stock broking firm has offices in Hong Kong, Thailand, Malaysia, and Shanghai in Asia. Outside of Asia, the firm has offices in London and New York.
On top of providing securities trading and other investment services, UOB Kay-Hian’s business now also covers fund management, unit trust, derivatives trading and corporate finance. The company is a part of UOB and is thus able to tap into the bank’s network to cross-sell its products.
Wee Ee Chao, the chairman and managing director of UOB Kay Hian, has been busy buying shares of the company in the month of June. He ended 31 May 2016 with a 24.83% interest in UOB Kay Hian (representing 191.73 million) shares; today his stake in the company has increased to 25.45% (199.39 million shares).
In the first-quarter of 2016, UOB Kay Hian’s total revenue declined by 14.0% year-on-year to S$77.2 million. This led to a 23% drop in net profit to S$14.5 million.
The company commented that “[r]egional markets suffered a major correction in January but recovered substantially by the end of the quarter.” It added: “Owing to poor sentiment, retail participation remained low.”
UOB Kay Hian’s management expects the weak market conditions seen in the first-quarter of 2016 to persist in the second-quarter. But, the company also thinks that “as oil price stabilises and governments across the region adopt proactive policies to stimulate growth… the economy will start to improve prompting better investment sentiment in the second half of the year.”
At UOB-Kay Hian’s closing share price of S$1.32 yesterday, the company’s valued at 15 times trailing earnings.
2. Hafary Holdings Ltd (SGX: 5VS)
Hafary is a flooring materials specialist with over 3,000 products in its portfolio that are sourced globally. The company serves a wide variety of customers, ranging from homeowners to interior designers and even developers.
On 16 June 2016, Low Kok Ann, Hafary’s executive chairman and chief executive, had bought 54,300 shares of the firm for a total sum of S$8,958. With the purchase, Low’s stake in the company had been bumped up from 8.25% to 8.27%.
In the firm’s latest earnings for the first-quarter of 2016, Hafary had reported a 14.8% year-on-year decline in revenue to S$21.8 million. But the impact on the bottom-line was more pronounced as net profit attributable to shareholders had plunged by 83% to S$0.19 million.
In the earnings release, Hafary gave some commentary on the landscape for Singapore’s construction industry, stating that construction demand in Singapore is expected to be between S$27 billion and S$34 billion in 2016. 65% of that amount will come from the public sector.
Hafary also added that the Building and Construction Authority of Singapore had also estimated that construction demand in Singapore from 2017 to 2020 will fall between S$26 billion and S$37 billion in each year.
The firm’s shares closed yesterday’s trading session at a price of S$0.20. Hafary has a price-to-earnings ratio of just 6.6 at that price.
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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.