It's another brutal day in the stock market, with the Dow Jones index down more than 200 points by mid-day. Even though there have been a few gains of 200+ points over the last two weeks, the short- to medium-term trend remains on the downside.
Of course, as stocks continue to fall, they will become cheaper, and long-term investors might view the current market turmoil as a great time to do some bargain hunting.
Short of a crystal ball, there's no surefire way to predict which stocks will outperform the current downturn. But taking a look at the sentiment of key investor groups can offer some clues.
We identified stocks that have seen significant short covering over the last month. Short-sellers turn a profit by selling a security high in order to buy it back low at a later date. Usually, when traders cover, or close, an open short, it means they expect that security to rise.
So a decrease in shares shorted means they think there's more upside than downside to a stock.
Short-sellers tend to be more sophisticated than your average investor -- because there's no ceiling to how high a stock may rise, going short on a position means infinite potential for downside. So it's not a bad idea to pay attention to their trades.
To further refine our search, we focused on institutional transactions (i.e., big money managers like hedge funds and mutual funds), and identified the companies that have seen significant buying during the current quarter.
Sophisticated investors, i.e., hedge funds and short-sellers, think there's upside to these companies -- what do you think? (Click here to access free, interactive tools to analyze these ideas.)
2. Primo Water
3. Resolute Energy
4. Sequans Communications
5. Renren American Depositary
6. ExamWorks Group
8. Hertz Global Holdings
9. hiSoft Technology International
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 Eben Esterhuizen does not own any of the shares mentioned above. Institutional data sourced from Fidelity, all other data sourced from Finviz.