Insider buying – where corporate executives and directors are buying shares in their own companies – is definitely something that is worth keeping a close eye on when researching stocks.
An insider may sell company stock for a variety of reasons (paying tax liabilities, diversifying their portfolio, buying property, etc). However, if they’re buying, there’s only one reason – they expect the stock to rise.
In the current environment, where economic uncertainty is so high, I’d argue insider buying carries even more weight. If an insider is buying company stock now, it sends a clear signal they think their business is resilient enough to weather the economic downturn we’re facing.
They also believe the share price is likely to rebound. That’s extremely useful information to know, given that some companies may not survive the next 12 months.
With that in mind, here’s a look at two FTSE 100 firms that have seen significant levels of insider buying over the last month.
Insider buying at Reckitt Benckiser
One is FTSE 100 stock Reckitt Benckiser (LSE: RB). It manufactures products consumers tend to buy irrespective of economic conditions. It also manufactures products likely to be in high demand in the current environment, such as Dettol disinfectant and wipes, Lysol disinfectant spray, and Mucinex cough medication.
Over the last month, a number of top-tier insiders have purchased shares including:
CEO Laxman Narasimhan (£1m worth of stock)
CFO Jeffrey Carr (£1.15m)
COO Health Aditya Sehgal (£560k)
COO Hygiene Harold Van Den Broek (£480k)
This level of buying – which is the highest for a number of years – looks very interesting to me. I like the fact that senior management, who are likely to have the most information on the company’s sales and future prospects, have been loading up on stock. This suggests management is confident about the future, which is reassuring in the current environment.
Just recently, I said RB is a good stock to own right now. This high level of insider buying reinforces my view.
Insider buying at M&G
Another FTSE 100 company that’s seen insider buying in recent weeks is financial services group M&G (LSE: MNG), which recently demerged from Prudential. Since mid-March, the following insiders have loaded up on stock:
CEO John Foley ( £167k worth of stock)
CIO Jonathan Daniels (£168k)
Chairman Mike Evans (£50k)
Independent Directors Clare Thompson (£34k) and Clive Adamson (£4k)
This is another stock that looks quite interesting to me, given the high level of buying.
Over the last six weeks, M&G shares have fallen from near-250p to around 110p. That’s a huge drop of more than 55%. Yet less than a month ago, the company said: “We have made a good start to life as an independent business and we are strongly positioned for growth.”
It also says its balance sheet was “resilient” and that its Solvency II ratio was 166% – firmly within its risk appetite.
All things considered, I think the medium-to-long-term risk/reward proposition here is attractive. Given the high level of insider buying, I think there’s a good chance the stock will bounce back from the recent fall, in time.
Edward Sheldon owns shares in Reckitt Benckiser and Prudential. The Motley Fool UK has no position in any of the shares mentioned. 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.