When an insider buys shares of a company, this is often a very bullish signal that indicates the stock could grow further. This is because insiders often have unique insights into their own company and can therefore determine whether the stock is undervalued. As Peter Lynch once stated: “Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise”. These two UK shares are recent examples of where insiders have bought shares. As a result, should investors follow their lead, or are there better options out there?
A defence specialist
One FTSE 100 company with recent insider buying is BAE Systems (LSE: BA). In this case, the Chairman Roger Carr recently bought £200,000 of the stock at 493p per share. While the share price has risen to around 535p since, the Chairman of a company buying such a significant amount of stock is clearly a very bullish sign, even if it had not risen.
But this is not the sole reason why I would invest in this UK share. For example, the recent half-year trading update was very positive, and the firm stated that it expects a “good second half to the year”. In fact, operating profits were £808m, which was only a decline of 10% from the year before. Sales also reached £9.9bn, and this was a 4% rise on the year. These results demonstrate how BAE has managed to cope well during the pandemic.
It also announced an interim dividend of 9.4p, which will be payable in November “assuming that there are no major additional or unforeseen pandemic-related disruptions”. With a yield of over 4%, this firmly cements BAE as one of my favourite UK shares. I’d buy without any hesitation today.
An up and coming UK share
A winner from the pandemic has been the online wine retailer Naked Wines (LSE: WINE). In fact, the firm has managed to deliver sales growth of around 76% for the first four months of its trading year, and there was 115% growth in the number of new customers.
Its share price has been a major beneficiary of the demand, with it rising by 107% since January. But this has not deterred COO Nicholas Devlin from buying more. In fact, he recently bought £20,000 worth of stock at 456p each. This demonstrates hope that the share price will continue to rise, as the UK share continues to benefit from increased demand.
In this case, I’m less convinced. While Naked Wines is a very strong business, the share price has already grown significantly. Consequently, I believe upside is limited because I can’t see demand remaining this strong for long. I’m therefore not following Devlin into buying this UK share, and believe there are better opportunities on the market.