One thing I always keep an eye on when researching stocks is insider buying. Corporate insiders (management and board members) have an information advantage over the rest of us because they’ve access to real-time business performance data. If they’re buying company stock, it’s generally a sign the company’s doing well and they expect the share price to rise.
Here, I’m going to highlight two FTSE 100 stocks that have seen large insider buys in the last few weeks. Should I buy these shares for my portfolio on the back of this activity?
FTSE 100 insider buying
First up, we have alcoholic drinks giant Diageo (LSE: DGE). Here, there was a large purchase from chairman Javier Ferrán on 23 September. He purchased 25,000 shares at a price of £35.25 per share, spending a total of £881,250 on DGE stock.
In hindsight, this purchase was timed well because only a week after the trade, Diageo posted an encouraging trading update which noted it had made a “strong start to fiscal 22.” The company said its North American business was performing strongly and that it expects its organic operating margin to benefit from a further recovery in sales volumes.
Would I buy Diageo shares for my portfolio today? Yes, I would. In my view, Diageo is a high-quality business and I expect it to do well as the world reopens in the years ahead.
It’s worth noting that Diageo does trade at a higher valuation. Currently, the FTSE 100 stock has a forward-looking price-to-earnings (P/E) ratio of about 27. This adds some risk to the investment case.
However, I’m comfortable with the valuation. Since the company’s latest trading update, analysts at Credit Suisse have raised their target price from £39.50 to £42.00, which implies upside of nearly 20%.
Insiders spent millions here
Another FTSE 100 stock that’s seen some big buying recently is private equity and infrastructure investment group 3i (LSE: III). On 20 September, Peter Wirtz, co-head of Private Equity, purchased 75,000 shares at a price of £12.69 per share, spending £951,615 on stock. Meanwhile, between 27-29 September, Pieter de Jong, co-head of Private Equity, purchased 100,000 shares at an average price of £12.77 per share, spending £1,277,000 on stock.
This insider activity’s very interesting, in my view. Both Wirtz and de Jong are expert investors. The fact they’ve spent such large sums on stock suggests they’re pretty confident the share price is set to rise.
It’s worth noting that, recently, 3i released a trading update in which it said its investment portfolios have continued to make good progress this financial year. It noted it’s seen a “strong performance” in the significant majority of its investments.
Would I buy this FTSE 100 stock for my portfolio today? Looking at the business, I’d be comfortable taking a small position here. I expect the private equity and infrastructure markets to do well in the years ahead and I think 3i looks well-placed to benefit. The valuation is very undemanding (forward P/E of just 5.2) so I think there’s upside potential.
One risk to consider here is volatility. 3i’s revenues and profits can flux and this is reflected in the share price, which can also be turbulent at times.
I think the overall risk/reward skew here is attractive however.
Markets around the world are reeling from the coronavirus pandemic…
And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.
Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…
You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.
That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.
Edward Sheldon owns shares of Diageo. The Motley Fool UK has recommended Diageo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.