The Big Money Says to Buy MIPS Technologies

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: MIPS Technologies (Nasdaq: MIPS). Are institutions bullish or bearish when it comes to this designer of microcontrollers for digital TV and other consumer electronics?

Foolish facts

Data current as of Nov. 23.

Even if the underlying growth story for MIPS looks sustainable, Fools aren't yet sold on the business. They like ARM Holdings (Nasdaq: ARMH) more.

"ARM is now getting more aggressive in graphics, releasing its new 'Mali' GPU, which represents a significant improvement over its previous graphics efforts. Perhaps more tellingly, ARM included support for programming that allows any software (not just games) to make better use of the graphics processor," my Foolish colleague Eric Bleeker wrote recently.

To be fair, Eric was taking a swipe at Imagination Technologies and not MIPS in writing that. No matter. The MIPS growth story depends on greater acceptance of its processors in mobile devices, and ARM dominates that market. As Foolish investor Waynoooo wrote earlier this month:

New tech for multi core cell phone processors. Will do for Android what going to Intel (Nasdaq: INTC) did for the Apple brand. If these guys take off (and I think they will), they will put other ARM processors into the doghouse, and Android will rule the world!

Either this Fool is right and MIPS leaps ahead of ARM, or the Android smartphone opportunity grows big enough to support outsized profits for both ARM and MIPS. Neither outcome is assured, yet analysts would appear to expect nothing less. They estimate MIPS will grow earnings by 18.75% annually for the foreseeable future.

Institutional ownership history

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

Big Money investors are as bullish as the analysts they employ. Not only have they bought big over the past year, but buying also accelerated from June to September. Since, only one of the top 25 institutions has trimmed its position in MIPS, but not by enough to signal anything other than continued enthusiasm for the shares.

Competitor and peer checkup

Source: Capital IQ. Data current as of Nov. 23.

None of these stocks has massive insider ownership yet all possess either modest or overwhelming support from institutional holders. AMD might have the best combination. With institutions owning just 53% of the shares outstanding, there's room for more of them to pile into the stock and drive it higher.

At 79% owned, MIPS has less elbowroom for new Big Money investors yet also boasts the most insider ownership. That's a good, if not great, combination and does nothing to alter my judgment that the stock will outperform.

Now it's your turn to weigh in. Would you bet on MIPS Technologies at current prices? Let us know what you think using the comments box below. You can also recommend other stocks for Tim to evaluate by sending him an email, or replying to him on Twitter.

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