One thing I like to keep an eye on as part of my investment research is director dealing. Nobody knows a business better than its leaders. If these ‘insiders’ are buying company stock, it can be a sign that it is undervalued.
Recently, I’ve noticed some large insider buys at a FTSE 100 company. I see this director dealing as very encouraging. On the back of this insider activity, I’ve bought more shares in the company myself.
FTSE 100 director dealing
The FTSE 100 company I’m referring to is consumer goods champion Reckitt Benckiser (LSE: RB). It owns Dettol, Nurofen, Durex, and a host of other well-known brands.
This week, the company has announced two large director deals. On 20 November, Chairman Chris Sinclair purchased 3,700 shares, spending £248,600 on the stock. Then, on 25 November, CEO Laxman Narasimhan purchased 7,930 shares, spending £501,900.
Insiders appear to be confident
This director dealing looks bullish to me for a number of reasons.
Firstly, these are top-level insiders who have bought stock. They are likely to have an in-depth understanding of Reckitt’s recent performance. It’s fair to assume that they are going to be way ahead of analysts and fund managers.
Secondly, these are large purchases. Both insiders have increased their stakes in the company significantly. Narasimhan’s purchase of 7,930 shares, for example, has increased the size of his holding by 23%. Meanwhile, Sinclair’s purchase of 3,700 shares has increased his stake by 60%. This suggests that these insiders firmly believe the FTSE 100 stock is undervalued right now.
Finally, insiders at Reckitt Benckiser have timed their purchases well in the past. Back in March, a number of top-level insiders, including the CEO, purchased RB stock when it dropped below £60. In the next few months, the share price rose to around £80 on the back of strong results.
I’m bullish on Reckitt Benckiser
This director dealing is not the only thing I like about RB right now. There are other reasons I’m bullish on the FTSE 100 stock.
One is that the company is benefiting from the increased focus on hygiene as a result of Covid-19. This is reflected in recent results, which have been excellent. Third-quarter results, for example, showed like-for-like sales growth of 13.3%. I expect hygiene to remain a focus across the world for years to come.
Secondly, City analysts are currently upgrading their earnings forecasts. Over the last month, the consensus earnings per share forecast for this year has risen from 318.8p to 325.2p. This is a positive development and it should support the share price.
I’ve bought more shares in this FTSE 100 firm
After rising to £80 in late July, Reckitt shares have pulled back to near £65 recently. Since the vaccine news, investors have dumped the stock.
I see a lot of value here after this pullback (and clearly so do the CEO and the Chairman). Earlier in the week, after the Chairman’s purchase, I topped up my holding.
With the forward-looking P/E ratio currently around 20, and a yield of about 2.7% on offer, I see this recession-proof FTSE 100 stock as a strong buy.
