10 Stocks Insiders and Hedge Funds Are Crazy About (part 1)

Insider activity provides a sneak peek to the future prospects of the company as this activity is based on the transactions made by executives and directors having exclusive and direct information about the company’s future. Insider buying is deemed as a positive sign, and investors pay attention to a stock that is loaded up on by insiders. In this article we will talk about stocks which have shown a high number of insider purchases recently, and are also liked by hedge funds. We will use our database of about 742 elite hedge funds.

Hedge fund sentiment is an important metric for assessing long-term profitability. At Insider Monkey, we track over 700 hedge funds, whose quarterly 13F filings we analyze to determine their collective sentiment towards several thousand stocks. However, our research has shown that the best strategy is to follow hedge funds into their small-cap picks. This approach can allow monthly returns of nearly 95 basis points above the market, as we determined through extensive backtests covering the period between 1999 and 2012 (read more details here).

A total of 9 hedge funds tracked by Insider Money were long Lands’ End, Inc. (NASDAQ:LE), as of the end of the third quarter, compared to 10 funds a quarter earlier. These funds own a massive 31% of the company’s total float as  a whole. There has been a lot of insider purchasing reported for Lands’ End, Inc. (NASDAQ:LE). Edward Lampert went on a buying spee and purchased thousands of shares in several transactions in October. The shareholder has 12.59 million shares of the company. Several company directors also purchased Lands’ End shares in October and September. Bruce Berkowitz’s Fairholme owns 3.35 million shares of the company as of the end of the third quarter.

A total of 15 hedge funds tracked by Insider Monkey own $87.09 million worth of Beazer Homes USA, Inc. (NYSE:BZH) shares, as of the end of the third quarter. This accounts for about 22.9% of the company’s float. A total of 203,499 shares have been purchased in insider trading at Beazer Homes USA, Inc. (NYSE:BZH). No insider selling was reported in the last three months. The stock is up over 15.7% year-to-date. The Atlanta, Georgia-based company reported fourth quarter loss of $0.03 a share, worse than the estimate of earnings of $0.67 per share, while $632.1 million revenue also fell short of the consensus estimate of $637.02 million. Chuck Royce’s Royce & Associates owned 1.36 million shares of Beazer Homes USA, Inc. (NYSE:BZH), as of the end of the third quarter.

On the next page, we will see some other stocks that are amassed by insiders and hedge funds alike. 

At the end of the third quarter, 41 hedge funds tracked by Insider Monkey were bullish on Chesapeake Energy Corporation (NYSE:CHK), up from 31 funds a quarter earlier. These funds collectively own about 23% of the energy company’s total float. Insider buying of over 4.6 million shares has been reported by Chesapeake Energy Corporation (NYSE:CHK) in the past 12 months, 1.05 million of which were bought in the last three months. The stock has gained over 60% in value since the start of the year.  The company earned $0.09 a share in the third quarter, crushing past the Street’s forecast of per share loss of $0.03. Natixis Global Asset Management’s Harris Associates owns 33.34 million shares of Chesapeake Energy Corporation (NYSE:CHK).

 

At the end of the September quarter, 23 hedge funds in our database reported ownership of $497.8 million worth of stake in PBF Energy Inc (NYSE:PBF) as a whole. These holdings account for 20.4% of the company’s total float. A total of 382,500 shares have been bought in insider trading in the last three months, while 4,865 shares were sold by insiders in the same period. The stock has lost over 30% year-to-date. In the third quarter, PBF reported a loss of $0.16 per share, worse than the analyst estimate of $0.02. Seth Klarman’s Baupost Group reported ownership of 15.72 million shares of PBF Energy Inc (NYSE:PBF).

 

At the end of the third quarter, 19 hedge funds in our system were long Intra-Cellular Therapies Inc (NASDAQ:ITCI), down from 25 funds a quarter earlier. These hedge funds own 16.30% of Intra-Cellular’s float. The stock has lost over 72% in value so far this year. In the last three months, 8 insider purchases have been made at Intra-Cellular Therapies Inc (NASDAQ:ITCI) in which 106,116 shares were acquired. In the third quarter, the company posted a loss of $0.70 a share, above the forecasts of $0.84 per share loss.

Disclosure: None