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Mr. Bowman is a portfolio manager at Hamilton-based Wickham Investment Counsel Inc., an adviser to high net worth clients. michael@wickhaminvestments.com
What are we looking for?
Corporate insiders are directors or senior officers of a company, or those who own more than 10 per cent of a company's voting shares.
Since insiders have exclusive information on their company, it is beneficial for investors to keep track of insider buying and selling – especially buying.
When insiders buy their own company's stock, it can be an indicator of the prospects for the company. My colleague Allan Meyer and I thought we would take a look at the recent insider buying patterns for some Canadian companies.
The screen
We are showing all the companies over $100-million in market cap that had insider buying – and no insider selling – during the previous six months. They are ranked in order of market capitalization.
The "number buying" column shows the number of insiders who have bought their company's shares in the open market during the last six months.
"Number owning" is the number of insiders who currently own shares in their company.
"Percentage increase" refers to the growth in the number of shares held by insiders in the last six months.
The final column is the price-to-book ratio: A lower P/B could mean the company is undervalued, and gives you some idea whether you may be paying too much for what would be left if the company immediately declared bankruptcy.
What did we find?
While 11 insiders bought Student Transportation, there was only a 7.2 per cent increase in shares held by insiders.
CML Healthcare shows the largest increase in shares held by insiders, but also has the largest price-to-book.
Gran Colombia has the lowest P/B and the largest number of insiders currently owning shares.
Primaris Retail, the largest company on our screen and currently the target of a joint offer by H&R Real Estate Investment Trust and a consortium led by KingSett Capital, scores well, as does IBI Group.
Conclusion
Many insiders possess the necessary skills that could be used to describe successful investors. They often have the education necessary to understand risk and how to control it, the capital to take advantage of opportunities and the tendency to go against the crowd. Studies over the past 40 years clearly confirm that insiders as a whole are smart investors of their own companies.