Lately, it feels as if the market is growing more confusing by the day. We have seen a six-year bull market and it has been more than 1,400 days since we had even a 10% pullback.
The stock market is steadily riding the wave of forced asset allocation created by a long-term zero interest rate policy, and many stocks trade at what seem to be ridiculous prices when compared to the value of the underlying corporation.
It is becoming increasingly difficult for individual investors to find a place to put their money to work at reasonable prices and at valuations that allow for the possibility of strong returns.
One way we can look for outstanding opportunities — in what is at best a mediocre market — is to follow the money trail left from insider buying in any given company. Quite often, heavy insider buying in an undervalued stock is a sign that a turnaround is near and the stock is worth buying.
Insider Buying in Apollo Investments (AINV)
Apollo Investments (AINV) is a business development company that has fallen this year, as investors are concerned about what will happen to these leveraged vehicles when rates rise.
They may be overlooking the fact that Apollo Investment is associated with private equity and alternative asset management giant Apollo Global (APO), and has access to deals and potential investments most of their competitors will never see.
James Zelter, CEO of Apollo Investment, is also the head of global credit at Apollo Global, putting him in the enviable position of cherry picking the ideal loans and deals for his BDC.
In the recent Apollo Global earnings call, Zelter said:
“AINV, which is the BDC, that continues in a marketplace where permanent capital vehicles in the credit space are few and far between … where (AINV) is trading to book value, we still believe there’s nice steady growth opportunities …”
He isn’t just saying nice words either; he’s putting his money where his mouth is. Last week, Zelter purchased an additional 10,000 shares of AINV, bringing his holdings to almost 270,000 shares.
President Edward Goldthorpe and three other directors have also been active buyers this month as well. With Apollo Investment trading at 90% of asset value and yielding 11.75%, individuals investors might want to invest alongside the officers and directors at the current price.
Insider Buying in Amkor (AMKR)
Amkor (AMKR) is in the semiconductor packaging and test services and the stock was hit recently when they fell short of the always highly accurate analyst estimates.
Amkor helps companies prepare test and ship chips that are used in smartphones, tablets, networking devices, fingerprint sensors, GPS devices and other electronic devices. A sluggish mobile market has pressured revenues a bit and the company expects business to pick up in the fourth quarter when a bunch of new devices will be introduced in time for the holiday shopping season.
AMKR has also been paying off its debt, and interest expense should fall by about $17 million a year going forward. That number alone would increase annual earning by about 13%.
Three directors have been buying the shares on the open market in the past month, so there is a high-level of confidence in the future being shown by those who run the company. Investors might want to consider investing alongside the board members as the long term upside of this company is substantial when business turns around.
Following insider buying may prove helpful in sifting out the worthwhile opportunities in what is becoming an increasingly frustrating market.
As of this writing, Tim Melvin did not hold a position in any of the aforementioned securities.