Corporate insiders have material non-public information and they sometimes trade on such information. This type of insider trading is illegal and some insiders who act directly on material non-public information were caught. But there are still a certain number of insiders trading in the grey area. Even when insiders do not trade illegally, they still have an edge over ordinary investors because they understand their companies much better than others. It does not make sense for them to increase their exposure to their companies’ performance unless they know their purchases have high probability of being profitable.
In this article, we are going to focus on the stocks that insiders and hedge fund manager David Einhorn love. Einhorn is the founder of Greenlight Capital, a long-short value-oriented hedge fund. During the market turmoil last year, the fund was up 5% through mid-December. His Green Mountain (GMCR) short position and the amazing performance of Seagate (STX) during the fourth quarter contributed to this result. Below we listed the stocks that are in Einhorn’s portfolio at the end of September and were purchased by at least one insider during the past three months.
The biggest position with an insider purchase in Einhorn’s portfolio is Apple Inc (AAPL). During the third quarter, Greenlight boosted its AAPL stakes by 22%. As of September 30, 2011, the fund had $500+ million invested in this stock. AAPL was also bought by one insider during the past three months. Robert Iger bought 1370 shares at $374.4856 on November 29. Iger bought another 1300 shares at $375.3292 on the same day. Now AAPL is trading at $419.71 per share, up nearly 12%. The stock has a market cap of $393B and a P/E ratio of 15.30. At the end of the third quarter, there are 125 hedge funds with AAPL positions in their portfolios. For example, Rob Citrone’s Discovery Capital Management had $838 million invested in AAPL. Tiger cubs Stephen Mandel and Chase Coleman are also bullish about AAPL. Mandel’s Lone Pine Capital had $785 million invested in AAPL and Coleman’s Tiger Global Management LLC reported to own $646 million worth of AAPL shares.
Einhorn also increased his stakes in Sprint Nextel Corp (S) and Best Buy Company Inc (BBY). Greenlight increased its S position by 32% and its BBY position by 2% during the third quarter. At the end of September, the fund had $224 million invested in S and $163 million invested in BBY shares. Both stocks were bought by one insider during the past three months. Daniel Hesse bought 100,000 shares of S at $2.8158 on November 9. Lisa Caputo bought 402 shares of BBY at $23.66 on January 3, 347 shares at $26.91 on December 1, and another 358 shares at $25.4 at the beginning of November. Today, S in trading at $2.23 and BBY is priced at $24.59. Ken Griffin’s Citadel Investment Group also had $12 million invested in S and another $43 million invested in BBY.
Other stocks that Einhorn and insiders are bullish about include LyondellBasell Industries NV (LYB), Fifth Street Finance Corp (FSC), Employers Holdings Inc (EIG), and Furiex Pharmaceuticals Inc (FURX). Einhorn also likes CVS Caremark Corporation (CVS), General Motors Company (GM), and HCA Holdings Inc (HCA), which were bought by insiders over the past six months. Our past studies have shown that insider purchases on average outperform the market in the following 12-month period. We encourage investors to research these stocks that both Einhorn and insiders love for their own portfolios.