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Before investing in any stock, I have a routine of due diligence that looks at a company’s fundamentals, technicals and common equity ownership. Based on the level of strength in all three areas determines how much I will invest in any given stock.

I have shared some of the fundamental reasons to support an investment in Universal Travel Group (UTA) in a recent article comparing China travel sector peers Ctrip.com (CTRP) and UTA. This follow-up piece will focus on the equity ownership strength of UTA.

When looking at a company’s ownership makeup, I always investigate the level and quality of equity shareholders (management, board members, institutions, individuals). Some of the questions I look to answer are as follows:
1. Is there institutional support?
2. Is there high insider ownership of shares?
3. Are insiders buying the stock?
4. Who are the largest individual shareholders and why?

This strength of equity ownership is important because as an individual investor I do not have the insider knowledge of management or the rigorous level of due diligence that is undertaken by individuals and institutions who have invested multi-millions of dollars in a given company.

With Universal Travel Group, my equity ownership research has resulted in a high rating in this department for the following reasons:

1. Level of institutional support (26.2%, including the top travel sector institutional investor, PAR Capital, covered in a previous Seeking Alpha article, and a newly reported position by Rochdale Investment Management of 799,270 shares worth $5.4 million. This high level of institutional support makes UTA the second highest institutionally owned stock on the Emerging China Small Cap (ECSC) Index Top 10 List.

2. CEO Jiang’s significant share ownership (4,498,246 shares, or 22% of outstanding shares) aligns her with shareholder value interests.

3. Recent insider buying by the CFO Xie (39,850 shares at $6.20/share worth $247,070.

My individual investor research on UTA is coming up strong as well, illustrated by last week’s 13G/A filing by George Valente, UTA’s largest, non-insider, individual shareholder. He reported an increase in his ownership stake in the company to 10.86% or 2,124,400 shares.

This wasn’t the first time I took notice of an individual investor’s bullish bet on Universal Travel Group. After reading "The Warren Buffetts Next Door: World’s Greatest Investors You’ve Never Heard Of" by Matthew Schifrin who is a vice president and iInvestment editor at Forbes overseeing money, investing and personal finance content in Forbes magazine and on Forbes.com, I became aware of another individual UTA major shareholder, Mike Koza. The book profiles him and other previously unknown investors with legendary performance records.

Since 2001, Mike Koza has a cumulative return of 1,566% (32.82% annualized) and turned $100,000 into $3 million in nine years. In his current portfolio, Universal Travel Group is his second largest holding behind China MediaExpress (OTCPK:CCME).

In a recent Forbes article written by Matthew Schifrin, he explains Koza’s path to investment success:

“Mike is a value investor who spends hours each day online reading about the companies he invests in and listening to downloads of management conference calls. He looks for companies being mispriced by Wall Street and figures out his own intrinsic value for stocks using discounted cash flow analysis.”

While Mike Koza is not a well known professional fund manager or analyst, his track record and due diligence discipline are very impressive. His $1 million-plus investment in UTA is very significant and a bullish clue from a great stock picker.

So back to last week’s 13G/A filing by UTA’s largest investor, George Valente. It is interesting that he continues to add to his UTA position (three times and counting) as the share price increases. In his initial 13G filing on October 13, 2010, Valente reported a 1,372,000 share position while the stock was in the $4.50 range. Just over a month later, on November 30, 2010, he filed a 13G/A reporting a 669,400 increase in his UTA position while the stock was in the $6.00 range. And last week’s 13G/A filing shows an increase of another 83,000 shares while the stock was in the $6.50 range.

So who is George Valente? He hasn’t been featured in a book like Mike Koza, but he has a strong record of personal investing success and experience in picking undervalued growth stocks for multiple-bagger gains.

Last week, I was able to connect with this successful businessman, investor and philanthropist from Northern California to ask him about UTA and his general investment philosophy. I discovered the following about Mr. Valente based on his responses to my questions:
1. Active investor for 45 years
2. Investment style is “aggressive but conservative growth”
3. Since 2002, particular focus on China stocks
4. UTA investment time horizon is 3-5 years
5. Great confidence in UTA Board and Management
6. Experience with Chinese travel including investments in CTRP & ELONG (LONG)
7. Most profitable recent investment: Las Vegas Sands (LVS) (from $5 to $45)

As a UTA shareholder, it is reassuring to know the extensive investment experience, due diligence discipline, and successful track record of those investing beside you. Unlike the majority of China small cap stocks with weak insider ownership, institutional support and individual shareholders, UTA’s relative strength in this area gives us a big clue to the confidence large investors have in the strong growth prospects and expected share price appreciation ahead for this not-so-undiscovered gem.

Source: Universal Travel Group: A Not-So Undiscovered China Small Cap Gem