One thing I always keep an eye on when looking for stocks to purchase is insider buying. Nobody has more information on a company than the people who run it. If an insider is spending a large amount of money on company shares, it’s often a sign that the outlook for the stock is attractive.
Here, I’m going to highlight two FTSE stocks that have seen large insider buys recently. Should I follow the insiders and buy these stocks for my own portfolio?
A £300k+ buy in the FTSE 100
First up, we have FTSE 100 stock London Stock Exchange Group (LSE: LSEG). Here, there was a large purchase from CEO David Schwimmer on 18 November. According to regulatory filings, the insider bought 5,000 LSEG shares at a price of £66.80 per share. This purchase cost around £334,000.
I see this buy as quite bullish. This year, LSEG shares have underperformed the FTSE 100 by a wide margin (-24% vs +10%). I’m not sure this underperformance is justified. Recent results for the third quarter of 2021 showed solid revenue growth of 7.6%. Meanwhile, the group said it’s making good progress on the integration of financial data company Refinitiv. After the recent share price pullback, the stock trades at just 22 times next year’s forecast earnings. That strikes me as quite low, given the group’s dominant market position.
It’s worth noting that Schwimmer, who has been CEO since 2018, has considerable experience in the financial services industry. Previously, he spent 20 years at Goldman Sachs in senior roles. So it’s fair to assume that he knows a bit about investing.
Of course, there’s no guarantee the stock will rise from here. Sometimes, insiders get their timing horribly wrong when they buy shares in their own companies.
However, I’m encouraged Schwimmer’s purchase. All things considered, I’d be happy to buy LSEG shares for my own portfolio on the back of this trade.
A £250k buy in the FTSE 250
Another stock with a large insider purchase recently is FTSE 250 technology company Kainos (LSE: KNOS). Here, there was a large purchase from chairman Tom Burnet on 17 November. Regulatory filings show the insider picked up 13,865 shares at a price of £18.04 per share, increasing his holding to 28,253 shares. This trade cost around £250k.
I see this as another quite bullish buy. Kainos’ recent half-year report, posted on 15 November, showed that the company is still growing at a rapid rate. For the six months to 30 September, revenue was up 33% while software-as-a-service bookings were up 118%. However, the market didn’t like the fact that earnings growth was weak and the share price fell. That’s when Burnet stepped up to buy.
I’ll point out that even after the recent share price pullback here, Kainos still has a high valuation. Currently, its forward-looking P/E ratio is about 48. That valuation adds a bit of risk to the investment case. However, Burnet seems to be comfortable with that valuation. The fact that he dropped £250k on shares (and nearly doubled the size of his holding) suggests that he’s confident about the future and expects the stock to rise from here.
Would I buy Kainos for my own portfolio today? Yes. This is one of my favourite UK tech companies. I expect it to get much bigger in the years ahead as businesses undergo digital transformation.
Edward Sheldon owns shares of London Stock Exchange Group. The Motley Fool UK has recommended Kainos. 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.
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