Quarterly filings from major hedge funds are highly anticipated in the financial community — many investors and market watchers are at least somewhat curious about what funds have been doing, and may find some of their picks to be interesting initial ideas.
We track hedge fund filings over time, alongside with those of hundreds of other notable investors, as part of our work developing investment strategies. Our research shows that the most popular small-cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about our small-cap strategy) and our own portfolio following this strategy outperformed the S&P 500 by 40 percentage points in the last 16 months.
We can refine hedge fund picks further by looking for stocks which have seen recent insider purchases, as stocks bought by insiders tend to narrowly outperform the market on average. This serves as a good screen for stocks which investors may find to be good values. In this article we will talk about four stocks in David Einhorn’s Greenlight Capital’s equity portfolio that had at least one insider purchase over the past six months:
First on our list is General Motors Company (NYSE:GM), the $50 billion market cap world-known auto manufacturer. Although in the last 13F form filed by Greenlight Capital at the U.S. Securities and Exchange Commission, the fund declared that its position in the company had remained unchanged over the third quarter of 2013, its bets are still quite high. The fund owns more than 17 million shares -valued at more than $622 million- which account for more than 10% of the total value of its equity portfolio. In fact, Einhorn himself recommended General Motors at the October 2012 Value Investing Congress.
I should also highlight that Warren Buffett’s Berkshire Hathaway has around $1.5 billion invested in General Motors Company (NYSE:GM). As one of the cheapest large-cap stocks with a forward price-earnings ratio of 9x, and TTM ratio of 11.2x, this certainly looks like a catch. In fact, analysts expect the company to deliver an average annual EPS growth rates around 15%-16% over the next five years, outperforming its peers by roughly 50%. George Soros, Frank Brosens, billionaire David Tepper, and Larry Robbins are among GM´s investors too.
In addition, the automaker has experienced high insider activity over 2013's last quarter. Matthew Tsien, Senior Vice President, made about 20 transactions in that time frame, which resulted in his holdings increasing by almost 25%, to 1,742 shares of Common Stock.
In the second place in our list is DST Systems, Inc. (NYSE:DST), information processing and computer software services and products provider with a market cap of $3.7 billion. Einhorn's position also remained unaffected over Q3. However, his 1.65 million shares, worth more than $145 million, still reveal plenty of bullishness. Furthermore, other funds like Ric Dillon´s Diamond Hill Capital, which started a $33 million (377,610 shares) position in the company in Q3, and Glenn Russell Dubin´s Highbridge Capital Management, which increased its stakes by 33% to 236,055 shares, also seem to like DST quite much.
In addition, Lowell Bryan, Director, Chairman of Corporate Governance/Nominating Committee, Member of the Audit Committee, Compensation Committee and Finance Committee at DST Systems, Inc. (NYSE:DST) made six separate stock purchases over the past six months. Starting in August, 2013, he added more than 1500 shares to his holdings, at prices ranging from $70.91 per share to $90.31 per share. He now owns 10,809 shares of the company.
Another interesting case is that of Fifth Street Finance Corp. (NASDAQ:FSC), a $1.3 billion market cap specialty finance company. Just like in the previous cases, Einhorn´s holdings in this company saw no activity over 2013´s third quarter. Nonetheless, once again, his $18.5 million (almost 2 million shares) stake is not to be overlooked. Neither should we ignore the four insider purchases that the company witnessed last December. Between Dec. 2nd and Dec. 13th, Bernard Berman (President & Secretary), Richard Dutkiewicz (Director), Ivelin Dimitrov (Chief Investment Officer), and Leonard Tannenbaum (CEO), all bought stock from the company. Let’s take a look at the details:
- Tannenbaum acquired 20,000 shares for $8.98 each and now owns more than 2 million shares
- Dimitrov bought 1,000 shares for $9.379 each, 500 shares for $13.5 each and 467 shares for $13.4 each
- Dutkiewicz purchased 250 shares for $9.3451 per share. He now holds more than 10,500 shares.
- Berman procured 1,000 shares at a price of $9.3897. His holdings now add up to almost 22,000 shares.
Finally, there's Intrexon Corp (NYSE:XON), a $3.22 billion market cap synthetic biology company that went public last August. Einhorn last declared that he had initiated a position in this company over the third quarter of 2013. Greenlight Capital owns 2,176,868 shares of the company, worth about $72.5 million. The stock is already up more than 40% since he first bought the stock. However, the current price of more than $33 per share seems a little high, at 120 times the company´s sales. Maybe waiting for a more attractive entry point would be wise.
Just like Einhorn, Dan Loeb and Ken Griffin, among several other prominent investors, also started a position in the company over Q3. Furthermore, over the past semester Intrexon Corp (NYSE:XON) also saw several insiders (five) purchasing its stock in repeated occasions. With this kind of bullishness in the air… Intrexon must be doing something right. The company´s prospects certainly look promising (its products could have a highly disruptive effect over the health-care industry), and the stock could yield great returns over the long-term.
Insider Monkey's small-cap strategy returned 75.6% between September 2012 and December 2013, beating the S&P 500 index by more than 40 percentage points. Download a free sample newsletter by clicking the link above.
Disclosure: Javier Hasse holds no position in any stocks mentioned