The Big Money Says to Buy Akamai

One of the great maxims of traders and Wall Street pros is to follow the "smart money."

I'm not much for the thesis that institutional shoppers tend to make smarter investing decisions, but many of you who've read my ruminations on insider buying say you'd also like to know how the Big Money is betting. Your wish is my command.

Next up: Akamai Technologies (Nasdaq: AKAM  ) . Are institutions bullish or bearish when it comes to this cloud computing enabler?

Foolish facts

Metric

Akamai Technologies

CAPS stars (out of 5)

****

Total ratings

3,115

Percent bulls

95.6%

Percent bears

4.4%

Bullish pitches

433 out of 456

Highest rated peers

On2 Technologies, Spark Networks, PHOTOCHANNEL NETWORKS

Data current as of Nov. 30.

Before we get into specifics, allow me to admit a bias. I'm not only the guy responsible for recommending Akamai to our Rule Breakers subscribers; I've owned shares since March of 2004.

What made Akamai attractive back then is the same thing that makes the stock attractive today. The company's worldwide network of 77,885 servers is capable of delivering both static and dynamic content that exists on the Web for varying purposes -- from entertainment to e-commerce to corporate computing.

What's more, Akamai has fought off a number of well-funded rivals in its 11 years. Today's competitive landscape is no different than what the company has faced before. Sellers routinely miss this point.

"Despite the Netflix (Nasdaq: NFLX  ) news, Akamai still has broad and deep roots in many clients with higher revenues. Netflix is renegotiating with them and Akamai will continue to be a strong force in the business," Foolish investor ChuckWoolery wrote earlier this month.

Institutional ownership history

Top Owners

2007*

2008*

2009*

Latest*

T. Rowe Price Group

508,400

221,610

2,866,675

14,880,567

Fidelity Investments

24,905,532

2,185,432

6,161,634

13,523,993

BlackRock

2,200,537

501,749

8,379,910

9,853,014

The Vanguard Group

6,271,963

7,280,977

7,933,385

8,662,600

State Street Global Advisors

5,365,747

5,815,842

6,050,301

6,138,048

TOP 25 TOTAL

59,957,666

44,330,581

72,876,221

100,311,277

Source: Capital IQ, a division of Standard & Poor's. *Indicates the number of shares owned.

As a group, institutions have been piling into Akamai for most of the past 18 months. Only recently has buying slowed. After purchasing more than 12 million shares during the June quarter, the top 25 bought just 2 million in the third quarter.

Big Money investors have good reason to like the stock. Not only is Akamai the market leader in Web content delivery, but it's also the fastest grower among peers on the basis of normalized net income. The company is also on track to end 2010 having generated $1 billion in revenue -- a first in its history.

Competitor and peer checkup

Company

Institutional Ownership

Insider Ownership

Akamai

87.61%

3.37%

AT&T (NYSE: T  )

58.62%

0.06%

F5 Networks

97.19%

0.54%

Internap Network Services (Nasdaq: INAP  )

57.88%

3.53%

Level 3 Communications (Nasdaq: LVLT  )

84.53%

3.55%

Limelight Networks (Nasdaq: LLNW  )

57.26%

12.19%

Source: Capital IQ. Data current as of Nov. 30.

This table doesn't do Akamai's ownership profile justice. Sure, there's more room for the Big Money to pile into AT&T, but CEO Paul Sagan and other Akamai insiders are about as engaged with their business as any executive team I've seen.

For example, when the stock fell under $40 per share over the summer, Sagan and new company President David Kenny combined to purchase 40,000 shares. They're up more than 25% since.

My point? I'll worry if they reverse themselves and begin dumping shares. But not before then, and certainly not because of hyperventilating fears about competitors.

Now it's your turn to weigh in. Do you think the institutions are wrong about Akamai Technologies? Let us know what you think using the comments box below. You can also recommend other stocks for me to evaluate by sending me an email, or replying to me on Twitter.

Interested in more info on Akamai? Add it to your watchlist by clicking here.

Netflix is a Motley Fool Stock Advisor selection. BlackRock is a Motley Fool Inside Value pick. Akamai is a Motley Fool Rule Breakers recommendation. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Rule Breakers stock-picking team. He owned shares of Akamai at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool owns shares of T. Rowe Price Group. The Fool is on Twitter as @TheMotleyFool. Its disclosure policy is smarter than the average bear.


Read/Post Comments (1) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 30, 2010, at 3:38 PM, ibuildthings wrote:

    Does the high institutional ownership put a ceiling on the price? Institutions are the ones whose buy or sell orders can change the price. If they already hold most of the shares, how much room is there to move?

    This isn't a rhetorical question to say, "don't buy". I would like to know the real answer to my question.

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