Occasionally, I would like to look at insider or share buybacks to see if I am lucky to spot any hidden gems. In fact, this is also one of the more commonly used strategies by investors. Why is that so?
As the legendary Fund manager Peter Lynch once said,
“Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.”
In short, a company’s management would only purchase the stock or initiate share buybacks when they perceive that the stock is undervalued. Hence, it makes sense for investors (like You and Me) to do some further research to see if the stock is really a bargain per se.
With these in mind, let’s zoom into 2 interesting companies I’ve cherry picked which have recently seen insider purchases or substantial shareholder purchases.
- Noble Group Limited (SGX:N21)
Commodities trader Noble Group Limited probably needs no introduction. At one point, it was a blue chip deemed as too cheap and a bargain. The next moment, it was dropped from the STI Index and the share price went crashing down >50%.
Since then, Noble has been fighting to prop up its finances and even issued a 1-for-1 rights issue in August 2016. Fortunately, it seems that Noble Group has gotten its lucky break.
On 14th February 2017, Noble Group issued a statement that it is currently engaged in discussions regarding a strategic investment in the firm. According to Bloomberg, people familiar with the talks has identified the other party as China’s Sinochem Group.
It seems Eastspring Investments, an investment arm of Prudential plc (LON:PRU), has gotten wind of the news earlier. It has gobbled up 29.037 million shares at an average price of S$0.1788. With that, its substantial stake in Noble Group shot up from 9.839% to 10.061%.
In case you are wondering why Noble Group’s share price has hiked up >20% in the past week, you got your answer there. I believed that many traders have hopped on the trend noticing that there is a big player in the field supporting the price gains.
Noble Group’s share price closed at S$0.225 on Friday. It is currently loss-making and does not offer any dividend yield.
- Magni-Tech Industries Berhad (KLSE:MAGNI)
According to its website, Magni-Tech is a leading manufacturer of garment and a wide range of flexible plastic, corrugated and offset printing packaging products for industrial and commercial uses.
Mr. Tan Poay Seng, Magni-tech’s Managing Director, snapped up a total of 840,700 shares of the company since the beginning of February 2017. The purchase raised his stake in the firm from 19.07% to 19.59%.
In its latest quarterly earnings, magni-tech saw revenue soared 42% to RM279.8 million while earnings also increased in line, climbing 32% to RM28.5 million.
Magni-tech’s shares closed at RM5.00 each on Friday, giving the company a price-to-earnings ratio of only 8.4x and a dividend yield of 2.8%.