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The purchase and sale of directors is often followed closely by professional investors and investors in the common equity market. Indeed, this gives all market participants a good indication of how the management of a company can potentially think of the value of its shares in relation to its recent operational or financial performance.
For example, we recently saw the general manager of the construction giant Lendlease Group (ASX: LLC) sold approximately 300,000 shares on Sept. 3 at $ 6 million shortly before the group revealed to the market on Nov. 9 that its engineering and services business was suffering from a "new underperformance" in an update that has dropped its action.
Elsewhere, the Director General and the Chief Financial Officer of Kogan.com Ltd (ASX: KGN) has sold several chunks of shares over the course of 2018, though its outlook is as strong as ever.
However, on October 29, 2018, Kogan warned that his overseas rivals were selling in Australia without GST and that the gross margin was being affected by the weakness of the Australian dollar. This news drove the stock down after the insiders had sold a lot of shares.
So, while the sale of insiders may be a clear warning sign to investors, insider purchases may be a "buy signal" for other investors.
In a November 22 announcement on the market, Pilbara-based iron ore Fortescue Metals Group Limited (ASX: FMG) revealed that its non-founding chairman, founder and former CEO, Andrew "Twiggy" Forrest, had purchased 1.06 million shares in the market for a total value of $ 23.2 million.
The shares were traded "on the market" on November 15 and 21, which meant that it was an active investment decision, not an option acquisition, for example.
With Fortescue having gained 28 cents US per share (exchange-adjusted 0.39 cents USD) and paid a total dividend of 0.23 cents per share, you can understand why Forrest thinks that the stock is cheap at prices below 4 USD.
For example, at $ 3.90, it is 10 times cheaper than the previous, with a return of 5.9%. It has also made significant progress in reducing its debt recently, although its net debt remains at US $ 3.1 billion for the minor.
If iron ore prices continue or rise in 2019, Fortescue shares will likely offer today's investors strong returns in 2019, but no one knows where the iron ore prices will go, especially in the US. context of the ongoing trade dispute between the United States and China.
5 companies we like better than Fortescue
When Scott Phillips, Ace Stock's coach, has a buy recommendation, history shows he can pay to listen.
Scott recently revealed what he believes to be the five best ASX stock for investors to buy now … and Fortescue was not one of them! That's right, he thinks these 5 stocks represent even better purchases.
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Yulia Mosaleva, a contributor to Motley Fool, does not own any of the shares mentioned. The Motley Fool Australia has recommended Kogan.com ltd. We fools may not all have the same opinion, but we all agree that taking into account a wide range of ideas makes us better investors. Motley Fool has a disclosure policy. This article contains only general investment tips (under AFSL 400691). Authorized by Scott Phillips.
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