If multiple insiders are buying company stock, it can be a sign that the stock is undervalued. This buying pattern, which is called ‘cluster buying’, is one of the strongest signals in insider transaction analysis.
In this report, we are going to highlight some recent cluster buying at Raytheon Technologies Corp (RTX:US). Raytheon is a leading technology company that is focused on the defense and aerospace industries. It’s listed on the New York Stock Exchange and currently has a market capitalization of $83.3 billion.
Raytheon Technologies: insider buying
Form 4 filings show that in late October, five insiders purchased Raytheon stock. Those who bought shares were:
- CEO Gregory Hayes
- Executive Chairman Thomas Kennedy
- General Counsel Frank Jimenez
- Board member James Winnefeld
- Board member Dinesh Paliwal
Combined, these insiders spent around $4.6 million on stock in the space of just a few days.
Source: 2iQ Research
Bullish cluster buying
This pattern of insider buying looks very bullish, in our view. For a start, the buying activity is substantial. The purchases represent the largest amount of insider buying within a quarter at Raytheon for several years.
Secondly, the mix of insiders that have bought stock is diverse. Those who bought include the CEO and the Chairman (both of whom are likely to have deep insight into the company’s operations), the General Counsel (generally speaking, these individuals tend to be quite risk-averse) and a board member who spent nearly 40 years in the Navy. There appears to be a strong consensus of opinion that the stock is currently undervalued.
Confident in the long-term fundamentalsRaytheon shares are down nearly 40% this year as the company has been impacted significantly by Covid-19. Recent third-quarter results, issued on 27 October, showed a 77% drop in profit due to lower demand from airlines.
However, the group delivered better-than-expected adjusted EPS and free cash flow during the quarter as it achieved approximately $700 million of cost reduction and $1.9 billion of cash conservation actions.
And looking ahead, management sounded confident about the long-term prospects. "The long-term business fundamentals and earnings power of Raytheon Technologies remain strong with our balanced portfolio, leading businesses and advanced technologies that combine the best of commercial aerospace and defense," said CEO Gregory Hayes.
In light of this confidence, we see the insider buying here as a bullish signal. Clearly, insiders expect the stock to rebound.