Nov. 21, 2011, 12:01 a.m. EST

Hedge funds and insiders love these stocks

By Meena Krishnamsetty

Insiders are generally long-term investors. They aren't allowed to make short-term profits; so when they buy, their investment horizon is at least 6 months. Academic studies show that abnormal returns to insider purchases persist for more than two years. On the other hand, hedge funds usually have shorter investment horizons. One exception is hedge funds that buy at least a 5% position in smaller and less liquid companies. These positions take longer to purchase, and profits from these transactions are generally realized over longer horizons.

We believe this is the perfect time to make some long-term bets in the stock market. Stocks are trading at very low multiples compared to their trailing earnings. Recent hedge fund and insider purchases indicate that energy, basic materials, and industrial stocks present long-term opportunities. Large technology stocks and financials are also favored by insiders and hedge funds but hedge funds usually don't have large assets under management to take 5% stakes in $100 billion companies. That's why we don't see them in this list.

Below we compiled a list of stocks that hedge funds and insiders have been bullish about recently. All stocks were bought by hedge funds and reported through 13G and 13D filings. This means that these hedge funds are so bullish about these stocks that they purchased at least 5% of outstanding shares of the company. Clearwater Paper Corporation (NYSE:CLW) , Pinnacle Entertainment (NYSE:PNK) , Kraton Performance Polymers (NYSE:KRA) , ZELTIQ Aesthetics (NASDAQ:ZLTQ) , eHealth (NASDAQ:EHTH) , LHC Group (NASDAQ:LHCG) , Primus Guaranty (NYSE:PRS) , and American Realty Capital Properties (UTD:ARCP) are the small cap stocks that satisfies our criteria.

The following are the stocks in our list with a market cap over $1 billion:

Whiting Petroleum Corp. (NYSE:WLL) An independent oil and gas company, WLL was purchased by one insider over the past month and lost 16.04% since the beginning of this year. William Hahne, a director at the company, bought 1,000 shares at $46.7912 on November 9. Now WLL is trading at $49.2. It has a market cap of $5.78B and a P/E ratio of 12.03. Wellington Management reported 10.26% passive stake in WLL on November 10. According to the amended 13G filing, Wellington now controls 12.04 million shares in WLL. Lee Ainslie invested $230 million in WLL. Ken Griffin , Steven Cohen , Ric Dillon and D. E. Shaw were also main investors in the stock.

EXCO Resources Inc. (NYSE:XCO) Independent oil and natural gas company XCO was purchased by two insiders over the past month and lost 34.13% since the beginning of this year. Mark Mulhern, director at EXCO, bought 4,000 shares at $12.9982 on November 7. Wilbur Ross filed Form 4 on October 17. It purchased 7,900 shares at $9.99 on October 13. According to Invesco's 13D at the end of August, it owned 26.78 million shares, or 12.5% activist stake in XCO. Howard Marks' Oaktree Capital also reported its insider purchases of 10,000 call options on November 8. These options will grant the firm the right to purchase 5,000 shares at $18.34 and another 5,000 shares at $13.19. XCO is now trading at $12.7. It has a market cap of $2.7B and a P/E ratio of 23.96. Jean-Marie Eveillard 's First Eagle Investment Management initiated a new position with 600,000 shares of XCO during the second quarter.

Universal Display Corp. (NASDAQ:PANL) Universal Display Corporation is engaged in research, development and commercialization of organic light emitting diode, technologies and materials. PANL was purchased by one insider over the past month and the stock returned 71.58% since the beginning of this year. According to the From 4 disclosures of Rob Citrone's Discovery Capital , Discovery Capital purchased 150 thousand shares in PANL at $42.56 on November 3 and another 300 thousand shares at $44.67 on November 1. PANL is now trading at $52.59. PANL has a market cap of $2.42B. John Hurley also had $29 million invested in PANL at the end of June.

Entegris, Inc. (NASDAQ:ENTG) Entegris is involved in the semiconductor and other high-technology industries. ENTG returned 20.75% since the beginning of this year. It was purchased by one insider over the past month. On October 24, as ENTG's largest insider and stakeholder, Thomas Claugus' GMT Capital bought 111,900 shares in ENTG. According to the 13G filing , after this purchase, GMT Capital had 13.88 million ENTG shares in its position. This corresponds to a 10.3% passive stake ownership. ENTG is now trading at $9.02. It has a market cap of $1.2B and a P/E ratio of 11. Richard Chilton's Chilton Investment Company also owned $86 million of ENTG stocks.

Chemtura Corporation (NYSE:CHMT) Chemtura Corporation is involved in performance-driven engineered specialty chemicals. CHMT was purchased by one insider over the past month and lost 25.59% since the beginning of this year. On October 21, Chet Cross, EVP and Group President of Chemtura, bought 700 shares at $10.94. Now CHMT is trading at $11.89. It has a market cap of $1.2B. On October 26th, WS Management filed a 13G , indicating that it has boosted its stake in CHMT to 4.89 million shares, corresponding to a 5.072% passive stake. D. E. Shaw increased his position in CHMT by 679% to over $28 million during the second quarter.