Insider buying – where corporate executives and directors are buying shares in their own companies – is worth keeping an eye on when looking for investment opportunities. An insider may sell company stock for a number of reasons (portfolio diversification, tax liabilities, buying real estate, etc). However, there’s only one reason they buy – they expect the stock to rise.
Quite often, insiders time their trades very well. For example, back in early March, I noted insiders at Reckitt Benckiser were buying heavily around the 5,500p-6,000p level. Since then, the FTSE 100 stock has climbed up to around 7,500p on the back of strong results.
Today, I’ll highlight two FTSE 350 shares that have recently seen some insider buying. Are these stocks worth buying on the back of this insider transaction activity?
Bullish insider buying at this FTSE 100 company
One FTSE 100 stock that’s seen some insider buying recently is defence giant BAE Systems (LSE: BA). According to regulatory filings, on 31 July, Lady Stephanie Carr – the wife of BAE chairman Sir Roger Carr – purchased 40,546 BAE shares at a price of 493p. The total cost of the purchase was approximately £200,000.
In my view, this insider purchase looks quite interesting. For a start, the chairman’s likely to have a very good understanding of the business and its prospects. Secondly, this was their largest insider purchase in a number of years (and the first since 2017).
In addition, the insider purchase came after the FTSE 100 company issued a relatively encouraging set of half-year results in which it declared a dividend and said that it expects a “good second half to the year.”
All things considered, I see this insider purchase as a bullish signal. With the stock trading on a low P/E ratio of just 12, I see it as a ‘buy’.
easyJet shares: a substantial insider purchase
Turning to the FTSE 250, there has also been some interesting insider buying at budget airline easyJet (LSE: EZJ) recently. According to regulatory filings, on 4 August, deputy chairman Charles Gurassa bought 90,241 easyJet shares at a price of 554p per share. The total cost of the trade was £499,935.
This trade stands out to me for several reasons. Firstly, at just under half a million pounds, it’s a substantial trade. And this purchase has boosted Gurassa’s holding significantly. Before this buy, he owned 18,198 easyJet shares. Now, he owns 108,439 shares. This suggests he’s confident the share price is going to rise.
Secondly, Gurassa has plenty of industry experience. Not only has he served as easyJet’s deputy chairman since 2011, but he has also served as CEO of Thomson Travel Group, executive chairman of TUI Northern Europe, and director of Passenger and Cargo at British Airways. It’s likely he knows the airline industry well.
Given the size of this trade and Gurassa’s experience, I think this insider purchase is quite bullish. That said, given the enormous amount of uncertainty associated with Covid-19, I wouldn’t rush to buy easyJet shares right now. Given the challenges the airlines face in the near term, I think there are better stocks to buy at present.