When a companys management starts buying shares, it is often see as a great vote of confidencein 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 companys 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 companys shares tend to outperform the market.
According to research published within a book calledInvestment 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, its always handy to keep an eye on managementtransactions. Last weekSABMiller(LSE: SAB),Glencore(LSE: GLEN),Standard Chartered(LSE: STAN),Santander(LSE: BNC) andeasyJet(LSE: EZJ) all reported director buying.
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 bothDiageoand larger peerAB Inbevhave been rumoured to be putting together a bid. Could this indicate that management knows something we dont?
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 banks shares.
Its easy to see why Standards 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. Whats more, Standard currently supports a 4.3% dividend yield, covered twice by earnings per share.
Still, Standards shares have underperformed the market this year as troubles at the banks Korean arm have depressed profits. It could be that Standards management has decided to buy in now, as they have seen an improvement within the Korean market.
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 sectors 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 Glencores management team is looking to ride the companys recovery.
Santander and easyJet were two other large caps thatreported director buying. One director at Santander spent 90,000 acquiring 15,000 shares and one of easyJets 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 banks shares currently support a dividend yield of 7.3% and trade at a historic P/E of 16.
Following director deals can be a great way to outperform the market. However, if you’ve not got time to research these transactions, then you need the Motley Fool’s brand new report, which reveals how you can change your life injust 20 minutes a month.
The report is designed to help you become one of the UK’sgrowing number of ‘surprise’ millionaires. It could help you create a portfolio that could bring you closer to financial freedom for life.
However, the report is only available for a limited time. Soclick hereto get your free copy today.
Hurry,this is somethingyou don’t want to miss.
Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK owns shares of Standard Chartered. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.