For this list we started with a universe of 180 stocks with market caps between $100M and $300M. We searched among them for the names experiencing significant levels of insider buying over the past six month.
From that universe we further identified the ones with significant levels of institutional buying in the current quarter.
We list seven results below.
If you are unfamiliar with the implications of the list's criteria have no fear, we all start at the beginning. We will first explore the terms in detail:
Market capitalization (market cap): Market capitalization, commonly referred to as market cap, is the total market value of a company's outstanding shares. It can be thought of as a measure of company's size. It can be calculated by multiplying the number of shares by the current price of the shares.
Example, If company X has 15 million outstanding shares valued at $25 a share, the market cap would be $15M x $25 = $375M. If Company's X's stock price rises to $30 then the new market value will be $450 million ($15M x $30 = $450M).
Small cap: $300M-$2B
Micro cap: $50M-$300M
Company's size can matter when examining risk. Stocks with a large market cap are generally less volatile to market conditions and are considered to have more trustworthy information because they have greater histories of profitability and data.
Institutional investors are also known as "big money" investors or managers. They represent big pools of money such as investment banks, pension funds, mutual funds, hedge funds, endowment funds, etc. When they invest in stocks, they can invest hundreds of thousands of dollars or more at one time. These transactions, called "block trades," can have a significant effect on share prices.
Because institutional investors handle such large amounts of money, it is easy enough to assume that the big money managers know what they are doing -- or at the very least know more than the average investor. This is why these investors are also sometimes referred to as "smart money."
If institutional investors start investing in a company, regular investors can assume that some of the most talented analysts and money managers expect the company's share prices to increase over time. The stocks on our list are experiencing significant investment from big money.
Insider buying: Many analysts follow insider buying trends because, after all, insiders know more about their companies than anyone else. Their investment activity is closely monitored and can tell us a lot about where they feel the business is heading.
Insider buying is represented as a percentage of the share float. Companies experiencing insider buying over the past six months provide an indicator that insiders think the stock is undervalued at current levels. Inversely, insider selling serves as a negative indicator.
Now that you're armed with information, use the list below as a starting-off point for your own research. Do you think insiders and hedge funds have the right idea?
List sorted by market cap. (Click here to access free, interactive tools to analyze these ideas.)
2. Valence Technology
3. Primo Water
4. RAIT Financial Trust
5. Miller Petroleum
6. The McClatchy Company
List compiled by Eben Esterhuizen, CFA.
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 and Becca Lipman do not own any of the shares mentioned above. Insider buying data sourced from Yahoo! Finance. Institutional data sourced from Fidelity. All other data sourced from Finviz.
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