When a company’s management starts buying shares, it is often see as a great vote of confidence in the business. Management buying is also a great indicator for investors, who can learn a lot from insider buying. Indeed, management has an unparalleled view on their company’s prospects and they tend to buy in when things are going well.
Actually, it has been found that when directors buy shares in their own companies, over an extended period of time, the company’s shares tend to outperform the market.
According to research published within a book called Investment Intelligence from Insider Trading, which examines the benefits of following director deals, investors following insider buying outperformed the market by 4.5%. This conclusion was reached after analysing nearly two decades of data and around one million transactions!
So, it’s always handy to keep an eye on management transactions. Last week SABMiller (LSE: SAB), Glencore (LSE: GLEN), Standard Chartered (LSE: STAN), Santander (LSE: BNC) and easyJet (LSE: EZJ) all reported director buying.
Place your bets
In a huge vote of confidence, directors at SAB spent £1.1m buying 33,000 shares in the global brewing giant last week. SAB has been the subject of bid speculation recently, as both Diageo and larger peer AB Inbev have been rumoured to be putting together a bid. Could this indicate that management knows something we don’t?
Whatever the case, SAB maybe too expensive for some investors at current levels. The company currently trades at a forward P/E of 22.2 and supports a dividend yield of around 2%.
Management were also splashing the cash at Standard Chartered. Last week two directors spent £121,000 buying 10,000 of the troubled bank’s shares.
It’s easy to see why Standard’s directors have decided to invest now. The bank currently trades at a near five-year low and one of the lowest valuations in its sector. What’s more, Standard currently supports a 4.3% dividend yield, covered twice by earnings per share.
Still, Standard’s shares have underperformed the market this year as troubles at the bank’s Korean arm have depressed profits. It could be that Standard’s management has decided to buy in now, as they have seen an improvement within the Korean market.
Strong belief
One of the biggest trades by a single director last week was at Glencore, where one director spent £144,000 acquiring 40,000 shares. Glencore has been one of the mining sector’s best performers this year, rising nearly 19% to date. Additionally, the commodity giant has just announced its intention to return $1bn to investors via a share buyback. It seems as if Glencore’s management team is looking to ride the company’s recovery.
Santander and easyJet were two other large caps that reported director buying. One director at Santander spent £90,000 acquiring 
15,000 shares and one of easyJet’s directors spent £35,000 to buy 2,600 shares.
EasyJet has seen its share price decline by around 10% so far this year. It seems as if directors are making use of these declines to buy in. The company currently trades at a forward P/E of 12.2 and supports a dividend yield of 2.4%.
Santander on the other hand is up nearly 16% year to date and it seems as if executives believe that the shares have further to run. The bank’s shares currently support a dividend yield of 7.3% and trade at a historic P/E of 16.
