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 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: Ambac Financial (NYSE: ABK). Are institutions bullish or bearish when it comes to this one-time mortgage insurer?

Foolish facts


Ambac Financial

CAPS stars (out of 5) *
Total ratings 1,152
Percent bulls 65.2%
Percent bears 34.8%
Bullish pitches 147 out of 187
Highest rated peers The Chubb Corporation, Progressive Corp., Allstate

Data current as of Oct. 27.

Fools haven't liked Ambac for a while, and for good reason. When the subprime crisis turned into a full-scale housing meltdown, the company was overwhelmed with mortgage insurance claims and a once-black income statement turned red with $5.6 billion in 2008 losses.

Profits returned recently, but if investors remain reticent it's because there's still finger pointing over who's responsible for paying out for bad loans. For example, up until last week, Ambac and bankrupt Lehman Brothers were locked in a dispute over $6 billion in claims.

Speculators, for their part, have piled into the stock on hopes the company would be able to reclaim funds from banks for failing to meet standards when writing loans Ambac insured. If the effort proves successful, Bank of America's (NYSE: BAC) Countrywide division, which Ambac sued in September, would have to write some very big checks.

"I have hopes they will win lawsuits or get nice settlements. Not so sure about continuing business, but in 5 years anything could happen," wrote Foolish investor vanzweb earlier this week. "It's an interesting speculative stock for day traders, too volatile for long termers. We'll know more about their fate in the upcoming 6-month trend."

Institutional ownership history

Top Owners





The Vanguard Group










Citigroup Asset Mgmt.





Third Avenue Management





Brigade Capital Management










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

On an annualized basis, the Big Money bet on a 2009-2010 recovery in Ambac shares, only to end up disappointed. The stock is down more than 25% since January of 2009. The S&P 500 has rallied more than 26% over the same period.

Institutions don't like to wait for profits, so it's unsurprising to see some of them trimming their exposure to this very speculative play.

Competitor and peer checkup


Institutional Ownership

Insider Ownership

Ambac Financial 30.17% 0.35%
Assured Guaranty (NYSE: AGO) 86.20% 0.80%
MBIA (NYSE: MBI) 75.66% 2.77%
MGIC Investment (NYSE: MTG) 83.67% 2.41%
PMI Group (NYSE: PMI) 60.80% 2.44%
Radian Group (NYSE: RDN) 67.56% 3.67%

Source: Capital IQ. Data current as of Oct. 27.

Ambac may be risky, but judging by this table, there's huge upside if the lawsuits lead to large settlements, which would force institutions back in. With just 30% ownership, they could push the stock multiples higher than it is today.

If you're looking for a lower-risk play in this sector, Radian may be the better bet. Like Ambac, its losses have been significant and peer PMI Group's earnings results recently disappointed, but Radian insiders have bought shares at prices well above what the stock trades for today.

Now it's your turn to weigh in. Do you think the institutions are wrong about Ambac and its peers? Let us know what you think using the comments box below. You can also recommended other stocks for Tim to evaluate by sending him an email, or replying to him on Twitter.

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

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article 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 is also on Twitter as @TheMotleyFool. Its disclosure policy is smarter than the average bear.