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Insiders and Shorts Disagree On Fastenal Company (FAST), The Cheesecake Factory Incorporated (CAKE), and More

Editor’s Note: Related Tickers: Fastenal Company (NASDAQ:FAST), The Cheesecake Factory Incorporated (NASDAQ:CAKE), Texas Industries, Inc. (NYSE:TXI), Windstream Corporation (NASDAQ:WIN), NewMarket Corporation (NYSE:NEU)

Studies show that stocks bought by insiders outperform the market, with multiple insider purchases being a particularly strong bullish signal at least on average (read our analysis of studies on consensus insider purchases). We think that this is because insiders already have a tight economic connection to the company, and so buying more shares- which reduces their diversification and thus runs against general economic theory- should generally indicate more confidence than usual in the stock’s prospects. Of course, insiders aren’t always correct and we have noticed that many stocks that even multiple insiders have been buying have large bearish communities. Here are five stocks which multiple insiders have bought in the last three months but also have high short interest as of the most recent data:

Steven Cohen

Two Board members at Fastenal Company (NASDAQ:FAST), a $14 billion market cap provider of bolts, nuts, screws, and other hardware supplies, were buying the stock in mid February at prices of above $50 per share. The stock is currently trading below that level following an announced revenue miss from the first quarter of 2013. The short ratio is more than 12, and Fastenal Company (NASDAQ:FAST)’s earnings multiples are quite high- the forward P/E, for example, is 26. Billionaire Steve Cohen’s SAC Capital Advisors was buying shares in the fourth quarter of 2012, closing December with 1.1 million shares in its portfolio (see Cohen’s stock picks).

The Cheesecake Factory Incorporated (NASDAQ:CAKE) has also been bought by multiple insiders in the last three months. The table service restaurant is coming off a bad Q4, when net income fell 26% versus a year earlier as sales were off slightly. At 21 times trailing earnings the stock is actually priced for moderate growth, so we can understand why shorts are interested in the stock. Billionaire Mario Gabelli’s GAMCO Investors reported a position of 1.1 million shares at the end of December, though it was the only fund we track in our database of 13F filings to have more than $15 million invested in the company (find Gabelli’s favorite stocks).

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