Looking for stocks that have strong profitability and bullish sentiment from hedge funds? Here are some ideas to get you started.
Profitability margins such as gross margin are helpful to gauge how much profits a company is taking from its revenues. Specifically, gross margin is the profit after deducting "cost of goods sold," which includes inventory. Therefore, companies with higher gross margins are more profitable and have a greater control of their costs.
Gross Margin = Gross Profit / Revenue
For companies that sell physical inventory, gross margin is a very important measure because cost of goods sold is usually the largest expense on the income statement.
Investment ideas
We started with a universe of companies with market caps above $300 million. We ran a screen for stocks with high profitability by searching for those that are seeing consistent increases in gross margin over the last four years, indicating that the stocks are keeping a greater portion of revenue as profits.
We then screened these stocks for names that have experienced the most significant levels of net institutional buying in the current quarter.
Institutional buying (net purchases from mutual funds, hedge funds, pensions, and bank trust departments) signals that sophisticated investors believe there is more upside than downside to the names.
Do you think the "Smart Money" is calling it right on these companies? (Click here to access free, interactive tools to analyze these ideas.)
1. Booz Allen Hamilton (NYSE: BAH ) : Provides professional services primarily to U.S. government agencies in the defense, security, and civil sectors, as well as to corporations, institutions, and not-for-profit organizations. Market cap of $2.31B. Gross profit margins increased from 44.03% to 47.38% during the first time interval (12 months ending 2009-03-31 vs. 12 months ending 2008-03-31). For the second time interval, gross margins increased from 47.38% to 48.19% (12 months ending 2010-03-31 vs. 12 months ending 2009-03-31). And for the final time interval, gross margins increased from 48.19% to 49.26% (12 months ending 2011-03-31 vs. 12 months ending 2010-03-31). Net institutional shares purchased over the current quarter at 4.4M, which is 16.60% of the company's 26.51M share float.
2. Cornerstone OnDemand (Nasdaq: CSOD ) : Provides learning and talent management solution delivered as software-as-a-service. Market cap of $884.09M. Gross profit margins increased from 64.39% to 68.82% during the first time interval (12 months ending 2008-12-31 vs. 12 months ending 2007-12-31). For the second time interval, gross margins increased from 68.82% to 70.43% (12 months ending 2009-12-31 vs. 12 months ending 2008-12-31). And for the final time interval, gross margins increased from 70.43% to 73.93% (12 months ending 2010-12-31 vs. 12 months ending 2009-12-31). Net institutional shares purchased over the current quarter at 2.6M, which is 10.56% of the company's 24.61M share float.
3. Endologix (Nasdaq: ELGX ) : Develops, manufactures, markets, and sells minimally invasive treatments for aortic disorders. Market cap of $665.74M. Gross profit margins increased from 62.05% to 72.44% during the first time interval (12 months ending 2008-12-31 vs. 12 months ending 2007-12-31). For the second time interval, gross margins increased from 72.44% to 74.87% (12 months ending 2009-12-31 vs. 12 months ending 2008-12-31). And for the final time interval, gross margins increased from 74.87% to 77.65% (12 months ending 2010-12-31 vs. 12 months ending 2009-12-31). Net institutional shares purchased over the current quarter at 4.3M, which is 8.63% of the company's 49.84M share float.
4. ITT Educational Services (NYSE: ESI ) : Offers postsecondary-degree programs in the U.S. that provide diplomas as well as associate's, bachelor's, and master's degrees. Market cap of $1.53B. Gross profit margins increased from 58.76% to 62.2% during the first time interval (12 months ending 2008-12-31 vs. 12 months ending 2007-12-31). For the second time interval, gross margins increased from 62.2% to 65.9% (12 months ending 2009-12-31 vs. 12 months ending 2008-12-31). And for the final time interval, gross margins increased from 65.9% to 66.31% (12 months ending 2010-12-31 vs. 12 months ending 2009-12-31). Net institutional shares purchased over the current quarter at 1.8M, which is 10.02% of the company's 17.96M share float.
5. Endeavour Silver Corp. (NYSE: EXK ) : Engages in the acquisition, evaluation, exploration, development, and exploitation of silver mining properties in Mexico. Market cap of $846.13M. Gross profit margins increased from -4.27% to 1.96% during the first time interval (12 months ending 2008-12-31 vs. 12 months ending 2007-12-31). For the second time interval, gross margins increased from 1.96% to 16.21% (12 months ending 2009-12-31 vs. 12 months ending 2008-12-31). And for the final time interval, gross margins increased from 16.21% to 33.97% (12 months ending 2010-12-31 vs. 12 months ending 2009-12-31). Net institutional shares purchased over the current quarter at 8.4M, which is 9.82% of the company's 85.50M share float. The stock is currently stuck in a downtrend, trading -10.34% below its SMA20, -11.75% below its SMA50, and -7.37% below its SMA200. The stock has gained 44.41% over the last year.
6. Express (Nasdaq: EXPR ) : Operates specialty retail stores in the United States. Market cap of $1.80B. Gross profit margins increased from 25.32% to 26.31% during the first time interval (53 weeks ending 2009-01-31 vs. 52 weeks ending 2008-01-30). For the second time interval, gross margins increased from 26.31% to 31.72% (52 weeks ending 2010-01-30 vs. 53 weeks ending 2009-01-31). And for the final time interval, gross margins increased from 31.72% to 35.59% (52 weeks ending 2011-01-29 vs. 52 weeks ending 2010-01-30). Net institutional shares purchased over the current quarter at 6.9M, which is 8.94% of the company's 77.19M share float.
7. Sourcefire (Nasdaq: FIRE ) : Provides intelligent Cybersecurity solutions for information technology (IT); environments of commercial enterprises, such as health care, financial services, manufacturing, energy, education, retail, and telecommunications; and federal, state, and international government organizations worldwide. Market cap of $945.87M. Gross profit margins increased from 76.94% to 77.06% during the first time interval (12 months ending 2008-12-31 vs. 12 months ending 2007-12-31). For the second time interval, gross margins increased from 77.06% to 78.71% (12 months ending 2009-12-31 vs. 12 months ending 2008-12-31). And for the final time interval, gross margins increased from 78.71% to 79.45% (12 months ending 2010-12-31 vs. 12 months ending 2009-12-31). Net institutional shares purchased over the current quarter at 3.4M, which is 12.35% of the company's 27.52M share float.
8. Home Properties (NYSE: HME ) : Engages in the ownership, operation, acquisition, development, and rehabilitation of apartment communities in the United States. Market cap of $2.81B. Gross profit margins increased from 57.88% to 58.32% during the first time interval (12 months ending 2008-12-31 vs. 12 months ending 2007-12-31). For the second time interval, gross margins increased from 58.32% to 58.32% (12 months ending 2009-12-31 vs. 12 months ending 2008-12-31). And for the final time interval, gross margins increased from 58.32% to 59.13% (12 months ending 2010-12-31 vs. 12 months ending 2009-12-31). Net institutional shares purchased over the current quarter at 9.2M, which is 19.39% of the company's 47.44M share float.
9. Newcastle Investment Corp. (NYSE: NCT ) : Operates as a real estate investment and finance company that invests in and manages a portfolio consisting primarily of real estate securities. Market cap of $515.38M. Gross profit margins increased from 29.92% to 34.46% during the first time interval (12 months ending 2008-12-31 vs. 12 months ending 2007-12-31). For the second time interval, gross margins increased from 34.46% to 39.64% (12 months ending 2009-12-31 vs. 12 months ending 2008-12-31). And for the final time interval, gross margins increased from 39.64% to 42.64% (12 months ending 2010-12-31 vs. 12 months ending 2009-12-31). Net institutional shares purchased over the current quarter at 9.1M, which is 8.95% of the company's 101.71M share float.
10. TIM Participacoes S.A. (NYSE: TSU ) : Provides mobile telecommunications services through global system mobile (GSM) technology to business and individual customers in Brazil. Market cap of $6.34B. Gross profit margins increased from 46.08% to 46.27% during the first time interval (12 months ending 2008-12-31 vs. 12 months ending 2007-12-31). For the second time interval, gross margins increased from 46.27% to 49.29% (12 months ending 2009-12-31 vs. 12 months ending 2008-12-31). And for the final time interval, gross margins increased from 49.29% to 49.47% (12 months ending 2010-12-31 vs. 12 months ending 2009-12-31). Net institutional shares purchased over the current quarter at 11.1M, which is 9.89% of the company's 112.21M share float.
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 Rebecca Lipman does not own any of the shares mentioned above. Institutional data sourced from Fidelity. Accounting data sourced from Google Finance.
RSS Headlines
Fool UK