FTSE 100 stock AstraZeneca (LSE: AZN) has taken a huge hit recently. Over the last few months, its share price has fallen about 30%.
Is there value on offer after this pullback? Company directors seem to think so. In the last week, they’ve been buying a ton of shares.
Why I look at insider buying
I pay attention to insider buying activity. Ultimately, no one has a better understanding of a company and its prospects than its leaders.
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And insiders only buy company stock for one reason – to make money. They’re not going to throw their hard earned cash at company shares if they believe the share price is heading lower.
Of course, not every insider purchase is a valuable investment signal. Some trades have more weight than others. What I look for is large purchases from top-tier insiders. Research shows that these tend to be the most material.
I also like to see multiple insiders buying stock simultaneously. This pattern, which is known as ‘cluster buying’, can be a very powerful signal.
Big buys at AstraZeneca
Zooming in on the director buying at AstraZeneca, the activity looks very interesting to me. On 13 November, director Philip Broadley (who has significant financial experience) bought 980 shares at a price of £101.70 per share. This trade was worth just under £100k.
Then on 14 November, chief executive Pascal Soriot (who has served as CEO since 2012) bought 20,000 shares at a price of £102.03. This transaction was worth a whopping £2.04m.
Finally, on 15 November, chairman Michel Demare (who also has financial experience) bought 2,000 shares at a price of £100.30. This was worth around £200k.
Overall, the three insiders bought around £2.3m worth of stock, which is significant.
Buying the dip
Now, I looked at why the AstraZeneca share price has fallen earlier this month. In short, a lot was down to issues in China where some company executives are being investigated for fraud.
It seems the insiders here aren’t too worried about this issue though. Otherwise they wouldn’t be buying shares right now.
New risks
One other risk has emerged in recent days however. And that’s the possible appointment of Robert F Kennedy Jr as the head of the US Department of Health and Human Services.
RFK is not a big fan of vaccines – an area of healthcare that AstraZeneca specialises in. So there could be some implications for AstraZeneca (and rival GSK) if he gets the gig (he may not).
Given that the vast majority of health experts believe in vaccines, I’d be surprised if he tried to block or ban them. So I’m not massively concerned about this risk at present.
Worth buying?
Turning to the valuation, AstraZeneca shares currently trade on a forward-looking price-to-earnings (P/E) ratio of just 13.4. I think that’s an attractive multiple for the pharma giant, all things considered.
At that valuation, I believe the stock’s worth considering (especially after the big director buys). A dividend yield of 2.6% adds weight to the investment case.
