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 be an indication that a company’s management thinks the stock is undervalued. The insiders could be wrong of course, but companies that have seen insiders buy shares consistently are still…
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 be an indication that a company’s management thinks the stock is undervalued. The insiders 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 more money where their mouth is.
1. Sin Heng Heavy Machinery Ltd (SGX: BKA)
Founded in 1969 as a company providing lifting solutions, Sin Heng now has two main business segments: Equipment Rental and Trading.
The former rents out cranes and aerial lifts. Sin Heng also provides turnkey project engineering services for its clients to complement its crane rental services. The Trading segment, as its name suggests, sees Sin Heng trade new and used cranes and aerial lifts. It also sells and distributes spare parts that are used in these lifting equipment.
On 22 June 2016, Tan Ah Lye had bought 104,000 shares of the company for a little over S$39,000. The purchase increased his interest in Sin Heng from 28.3% to 28.4%. Tan was appointed as the executive chairman of Sin Heng on 1 July 2016; he was previously the company’s non-executive chairman.
Sin Heng’s latest set of results were released in May. They were for the firm’s fiscal third-quarter, the three months ended 31 March 2016. It was not a good quarter for Sin Heng.
Quarterly revenue declined by 52.0% year-on-year to S$18.77 million mainly due to weakness in the Trading business in which significantly less equipment were sold. The big revenue drop resulted in the bottom-line turning negative, changing from S$3.0 million a year ago to a loss of S$1.65 million.
Sin Heng appears pessimistic about its future. In its earnings release, the company said, “in view of the poor economic sentiments in the regional countries, we expect to face difficult challenges ahead.”
The company’s shares closed at a price of S$0.34 yesterday. At that price, Sin Heng’s valued at just 0.3 times its latest book value.
2. Hong Fok Corporation Limited (SGX: H30)
Hong Fok is a property construction and development outfit. The company’s portfolio includes projects in Singapore such as Concourse at Beach Road and International Building at Orchard Road.
On 20 June 2016, Cheong Sim Eng, the joint chairman and joint managing director of Hong Fok, spent around S$50,000 to buy 74,000 shares of the company. With the purchase, Cheong’s stake in the company had inched up from 17.162% to 17.171%.
In Hong Fok’s latest earnings for the first-quarter of 2016, the company had seen its revenue dip by 10% to S$14.0 million from a year ago. But, the bottom-line was shredded – Hong Fok’s profit attributable to shareholders of S$853,000 in the first-quarter of 2015 had sunk to just S$54,000. An 18% jump in finance expenses from S$4.87 million to S$5.77 million had been a big culprit.
Hong Fok expects the sales for its residential units to “continue to be sluggish.”
The company’s shares closed yesterday’s trading session at S$0.66 apiece, giving Hong Fok a price-to-book ratio of 2.8.
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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.