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 I’ve chosen at random from a list of companies that have recently seen insiders buy shares.
1. Kim Heng Offshore & Marine Holdings Ltd (SGX:5G2)
Kim Heng has been in business for over 40 years. Today, it 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 for offshore oil and gas projects ranging from oil exploration to field development and oil production.
Thomas Tan, Kim Heng’s chairman and chief executive, had recently bought a total of 60,000 shares on two occasions (27 September and 3 October) for a sum of nearly S$4,030. The transactions had increased his total interest in his company from 42.68% to 42.69%.
Kim Heng’s latest results (for the second-quarter of 2016) were released on 5 August. Total revenue slumped by 31% to S$7.7 million compared to a year ago. The bottom-line had improved. But, the company is still loss-making – Kim Heng’s loss of S$2.8 million in the second-quarter of 2015 had become a loss of S$1.4 million. The company’s business had suffered because of a sharp decline in the price of oil over the past two years.
In its earnings release, Kim Heng stated that its business environment is expected to remain challenging in the next 12 months. But, the company thinks that its “current strong cash position allows [it] to undertake expansion activities and additional projects which put the Group in good stead to capitalise on the attractive valuations of prospective targets.” Kim Heng ended the reporting quarter with S$27.5 million in cash and S$28.3 million in debt.
Kim Heng’s share price closed at S$0.08 yesterday after falling more than 30% over the past year. At that price, Kim Heng is valued at 0.67 times book value.
2. Uni-Asia Holdings Ltd (SGX: AYF)
Uni-Asia Holdings brands itself as an “alternative investment company.” The firm provides alternative investment opportunities for investors and has capabilities in asset management, hotel operations, structured finance, fund management, and more. Uni-Asia’s investment focus is rather specific – it deals with cargo vessels and properties in Japan, China, and Hong Kong.
Masaki Fukumori, Uni-Asia Holdings’ executive director and chief operating officer, bought shares of the company on three occasions in the month of September (6, 7, and 14 September 2016). All told, he spent slightly over S$36,000 on 35,300 shares. The purchases raised his stake in Uni-Asia Holdings from 2.08% to 2.16%.
Fukumori was not the only insider who was buying. Michio Tanamoto, the chairman and chief executive of Uni-Asia, also acquired a total of 35,000 shares on 15 and 19 September 2016 for a sum of around S$37,600. The purchases bumped up his ownership stake in Uni-Asia from 2.14% to 2.21%.
Uni-Asia reported its 2016 second-quarter results about two months ago. While total income for the quarter inched up by 4% to US$22.6 million, net profit after tax actually fell 53% to US$1.8 million due to a 20% increase in operating expenses on the back of higher amortisation and depreciation and vessel operating expenses. The company’s book value per share stepped up by 1% from US$2.99 a year ago to US$3.02.
Uni-Asia’s shares closed at S$1.07 each yesterday, giving the company a price-to-book ratio of around 0.3.
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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.