It's important to remember that buying stocks is just like any other purchase -- many investors buy when a stock rises and sell when a stock falls, but a rising price means a more expensive stock, and a falling price often means a bargain.
For a look at potential bargains, we ran a screen on stocks trading under $5 for those that the "big money investors" believe in.
Short-sellers and hedge funds
Institutional investors like hedge fund managers and mutual fund managers have a lot of experience in choosing investments, and they have access to the most sophisticated research. If they're buying a stock, it's a signal to take a second look.
As for short-sellers, they are also considered very knowledgeable due to the stringent requirements and background checks they are held to (this is because short-selling involves large amounts of borrowing).
Investing ideas
We ran a screen on stocks trading under $5 for those seeing bullish sentiment from both short-sellers and institutions: decreases in shares shorted m/m as well as significant net institutional purchases over the current quarter.
Do you think these stocks are bargains waiting to rally? Use this list as a starting point for your own analysis.
List sorted by net institutional purchases as a percent of share float. (Click here to access free, interactive tools to analyze these ideas.)
1. Affymetrix (Nasdaq: AFFX ) : Engages in the development, manufacture, sale, and servicing of consumables and systems for genetic analysis in the life sciences and clinical health care markets. Current price at $4.91. Net institutional purchases in the current quarter at 8.5M shares, which represents about 14.7% of the company's float of 57.87M shares. Shares shorted have decreased from 8.76M to 5.99M over the last month, a decrease that represents about 4.79% of the company's float of 57.87M shares.
2. Sify Technologies Limited (Nasdaq: SIFY ) : Provides enterprise and consumer Internet services primarily in India. Current price at $4.91. Net institutional purchases in the current quarter at 656.3K shares, which represents about 14.02% of the company's float of 4.68M shares. Shares shorted have decreased from 3.68M to 3.33M over the last month, a decrease that represents about 7.48% of the company's float of 4.68M shares
3. Central European Distribution (Nasdaq: CEDC ) : Produces, imports, and distributes alcoholic beverages in Poland, Hungary, and the Russian Federation. Current price at $3.22. Net institutional purchases in the current quarter at 5.1M shares, which represents about 8.25% of the company's float of 61.85M shares. Shares shorted have decreased from 10.50M to 9.81M over the last month, a decrease that represents about 1.12% of the company's float of 61.85M shares.
4. Standard Pacific (NYSE: SPF ) : Operates as a diversified builder of single-family attached and detached homes in the United States. Current price at $2.91. Net institutional purchases in the current quarter at 7.3M shares, which represents about 6.91% of the company's float of 105.61M shares. Shares shorted have decreased from 19.16M to 18.01M over the last month, a decrease that represents about 1.09% of the company's float of 105.61M shares.
5. Giant Interactive Group (NYSE: GA ) : Develops and operates online games in the People's Republic of China. Current price at $4.12. Net institutional purchases in the current quarter at 5.0M shares, which represents about 5.55% of the company's float of 90.17M shares. Shares shorted have decreased from 6.22M to 4.26M over the last month, a decrease that represents about 2.17% of the company's float of 90.17M shares.
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.
Kapitall's Alexander Crawford does not own any of the shares mentioned above. Institutional data sourced from Fidelity, short data sourced from Yahoo! Finance.
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