If you are of the belief that a good management team is essential for a company to succeed, you are not alone. Many analysts are interested in management teams.
The following is a list of companies with excellent management teams -- judged by trends in the return on assets [ROA] and return on equity [ROE] ratios over the last 12 months. To further refine the quality of the list, we had a look at institutional activity and identified the set of stocks that have seen the most significant net purchases over the last month.
All of the companies mentioned below have market caps above $300 million. They have also seen trailing twelve month [TTM] ROE and ROA accelerate faster than the prior TTM period. In addition, all of the companies below have TTM ROA and ROE values above 10%.
Tools of the trade for budding investors
Let's review the terms used above and how they can be valuable tools in identifying stocks for your portfolio.
Return-on-Equity (ROE): There is a common saying that goes: "It takes money to make money." Return-on-Equity (ROE) is a widely used measure of how good a company is at turning investors' money into even more money. It gauges a company's profitability. ROE is the amount of net income relative to the value of shareholders' equity.
ROE = Net Income / Shareholder's Equity
(Shareholders' equity is the amount the company has from stock shares, calculated as the company's total assets - total liabilities)
Return on Assets (ROA): This is an indicator of how profitable a company is relative to its total assets. It's a widely used measure of how efficient management is at using assets to generate earnings.
ROA = Net Income / Total Assets
Trailing 12 months (TTM) is an indication that the calculated data has come from the last twelve months. In this article we look at the company's TTM ROE and ROA and compare them with their prior TTM ROE and ROA (meaning from 12-24 months ago).
Institutional investors are also known as "big money" investors or managers. They represent big pools of money such as investment banks, pension funds, mutual funds, hedge funds, endowment funds, etc. When they invest in stocks, they can invest hundreds of thousands of dollars or more at one time. These transactions, called "block trades," can have a significant effect on share prices.
Because institutional investors handle such large amounts of money, it is easy enough to assume that the big money managers know what they are doing -- or at the very least know more than the average investor. This is why these investors are also sometimes referred to as "smart money."
If institutional investors start investing in a company, regular investors can assume that some of the most talented analysts and money managers expect the company's share prices to increase over time. The stocks on our list are experiencing significant investment from big money.
Smart money seem to think the upside potential of these stocks outweigh the downside -- do you agree? Use the list below as a starting point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)
1. Alliance Holdings (Nasdaq: AHGP ) : Nonmetallic Mineral Mining Industry. Market cap of $3.06B. Current price at $50.8. Net institutional shares purchased over the current quarter at 1.2M (a change equivalent to 39.47% of the company's 3.04M share float). TTM ROA at 24.98% vs. prior TTM ROA at 17.24%. TTM ROE at 59.69% vs. prior TTM ROE at 43.20%. The stock has had a good month, gaining 12.14%.
2. Gulfport Energy (Nasdaq: GPOR ) : Independent Oil & Gas Industry. Market cap of $1.77B. Current price at $35.35. Net institutional shares purchased over the current quarter at 6.8M (a change equivalent to 17.62% of the company's 38.60M share float). TTM ROA at 19.15% vs. prior TTM ROA at 13.68%. TTM ROE at 25.93% vs. prior TTM ROE at 23.90%. This is a risky stock that is significantly more volatile than the overall market (beta = 2.39). The stock has had a couple of great days, gaining 20.25% over the last week.
3. Questcor Pharmaceuticals (Nasdaq: QCOR ) : Biotechnology Industry. Market cap of $1.63B. Current price at $26.32. Net institutional shares purchased over the current quarter at 7.3M (a change equivalent to 13.3% of the company's 54.90M share float). TTM ROA at 28.10% vs. prior TTM ROA at 26.48%. TTM ROE at 36.58% vs. prior TTM ROE at 34.06%. The stock is a short squeeze candidate, with a short float at 12.73% (equivalent to 7.88 days of average volume). The stock has had a good month, gaining 12.78%.
4. Synaptics (Nasdaq: SYNA ) : Computer Peripherals Industry. Market cap of $827.14M. Current price at $24.36. Net institutional shares purchased over the current quarter at 4.4M (a change equivalent to 12.96% of the company's 33.96M share float). TTM ROA at 16.85% vs. prior TTM ROA at 13.42%. TTM ROE at 23.18% vs. prior TTM ROE at 20.83%. Might be undervalued at current levels, with a PEG ratio at 0.71, and P/FCF ratio at 9.34. The stock is a short squeeze candidate, with a short float at 24.48% (equivalent to 19.52 days of average volume). The stock has lost 18.82% over the last year.
5. j2 Global Communications (Nasdaq: JCOM ) : Internet Software & Services Industry. Market cap of $1.30B. Current price at $28.23. Net institutional shares purchased over the current quarter at 4.2M (a change equivalent to 9.56% of the company's 43.94M share float). TTM ROA at 19.10% vs. prior TTM ROA at 16.76%. TTM ROE at 23.38% vs. prior TTM ROE at 21.05%. The stock is a short squeeze candidate, with a short float at 11.18% (equivalent to 22.88 days of average volume). The stock has gained 27.9% over the last year.
6. Acme Packet (Nasdaq: APKT ) : Communication Equipment Industry. Market cap of $4.19B. Current price at $60.6. Net institutional shares purchased over the current quarter at 4.4M (a change equivalent to 8.28% of the company's 53.15M share float). TTM ROA at 14.08% vs. prior TTM ROA at 10.10%. TTM ROE at 16.64% vs. prior TTM ROE at 12.16%. The stock has gained 112.73% over the last year.
7. Credit Acceptance (Nasdaq: CACC ) : Credit Services Industry. Market cap of $2.11B. Current price at $84.02. Net institutional shares purchased over the current quarter at 426.9K (a change equivalent to 8.15% of the company's 5.24M share float). TTM ROA at 13.33% vs. prior TTM ROA at 12.40%. TTM ROE at 39.15% vs. prior TTM ROE at 33.15%. The stock has gained 69.02% over the last year.
8. Medifast (NYSE: MED ) : Specialty Retail, Other Industry. Market cap of $319.56M. Current price at $21.04. Net institutional shares purchased over the current quarter at 895.0K (a change equivalent to 7.48% of the company's 11.97M share float). TTM ROA at 23.45% vs. prior TTM ROA at 21.57%. TTM ROE at 31.27% vs. prior TTM ROE at 28.61%. The stock is a short squeeze candidate, with a short float at 26.31% (equivalent to 7.4 days of average volume). It's been a rough couple of days for the stock, losing 14.98% over the last week.
9. Mercadolibre (Nasdaq: MELI ) : Business Services Industry. Market cap of $3.39B. Current price at $80.68. Net institutional shares purchased over the current quarter at 2.0M (a change equivalent to 7.36% of the company's 27.18M share float). TTM ROA at 25.24% vs. prior TTM ROA at 21.20%. TTM ROE at 39.47% vs. prior TTM ROE at 34.22%. The stock has gained 30.54% over the last year.
10. Bio-Reference Laboratories (Nasdaq: BRLI ) : Medical Laboratories & Research Industry. Market cap of $555.45M. Current price at $19.86. Net institutional shares purchased over the current quarter at 1.8M (a change equivalent to 7.29% of the company's 24.68M share float). TTM ROA at 13.21% vs. prior TTM ROA at 11.63%. TTM ROE at 21.27% vs. prior TTM ROE at 19.06%. The stock is a short squeeze candidate, with a short float at 30.13% (equivalent to 35.59 days of average volume). The stock has lost 4.79% over the last year.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Disclosure: Kapitall's Becca Lipman does not own any of the shares mentioned above. Data sourced from Screener.co and Finviz.
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