Investors have a tendency to let emotion, rather than logic, be their guide, usually opting to ride the wave of crowd sentiment over rational decision-making. Multiple studies have shown how just how easily investors are swayed by recent events, like market news, political trends and earnings, clouding their ability to process a company's fundamentals. And it's not just retail investors -- even institutions can get swept away by the emotion of the market.
Once a stock gets started in one direction, it often picks up steam as more and more investors jump on the bandwagon. But momentum can't keep a stock going forever -- if anything, extreme highs and lows often indicate that the tide's about to turn in the other direction. And this creates tremendous opportunity for those investors who can tune out the hysteria of the masses and take the contrary course.
Excessive enthusiasm over a soaring stock can only push a price so high -- so when shareholders finally start cashing out their profits, and the stock will take a drop. At the other end of the spectrum, a declining stock can send investors into panic mode, causing it to plummet even further. But savvy bargain hunters will seize the opportunity to swoop in on the mass sell-off, which could jump-start its next rally.
But defying the direction of the crowd just for the sake of being contrary is no better than blindly following it. You may want to look for additional indicators, like insider buying trends -- given that they probably know more about their firm than anyone else, you could stand to benefit by paying attention to their trades.
So when company management starts snapping up its own stock, it's a pretty strong sign that they expect to see some upside on it.
Here's a list of stocks being dumped by the "smart" money that have seen an upsurge in insider buying. Insiders seem to think institutional investors are underestimating these names -- what do you think? (Click here to access free, interactive tools to analyze these ideas.)
|
Company |
Industry |
Institutional Investors |
Mutual Fund Investors |
Insider Trends |
|---|---|---|---|---|
|
Mead Johnson Nutrition Company |
Processed & Packaged Goods |
On a net basis, reduced holdings by -3.1M shares in the current quarter, vs. a -105.5K decline in the previous quarter |
On a net basis, reduced holdings by -950.3K shares in the current quarter, vs. a -847.6K decline in the previous quarter |
Insiders purchased 7,500 shares over the last six months (insider ownership increased by 6.7%) |
|
Medtronic |
Medical Appliances & Equipment |
On a net basis, reduced holdings by -15.8M shares in the current quarter, vs. a -10.7M decline in the previous quarter |
On a net basis, reduced holdings by -25.4M shares in the current quarter, vs. a -1.9M decline in the previous quarter |
Insiders purchased 21,771 shares over the last six months (insider ownership increased by 2.5%) |
|
Kimberly Clark |
Personal Products |
On a net basis, reduced holdings by -12.4M shares in the current quarter, vs. a -2.4M decline in the previous quarter |
On a net basis, reduced holdings by -1.7M shares in the current quarter, vs. a -1.9M decline in the previous quarter |
Insiders purchased 7,367 shares over the last six months (insider ownership increased by 0.9%) |
|
AutoNation |
Auto Dealerships |
On a net basis, reduced holdings by -1.9M shares in the current quarter, vs. a -7.5M decline in the previous quarter |
On a net basis, reduced holdings by -457.2K shares in the current quarter, vs. a -336.9K decline in the previous quarter |
Insiders purchased 853,492 shares over the last six months (insider ownership increased by 0.8%) |
Institutional data sourced from Fidelity, insider trading data sourced from Yahoo! Finance. The list has been sorted by the change in insider ownership.
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. Note: The numbers on top of items represent the forward P/E ratio, if available.
Kapitall's Eben Esterhuizen and Alicia Sellitti do not own shares of any companies mentioned.
