Many investors shy away from stocks that have recently underperformed the market, but a closer look may show that some underperformers could be ripe for a rebound. After all, heavy selling makes stock prices more attractive.
The catch in finding these rebound candidates is picking which stocks have legs to stand on. Luckily, we can find guidance in several "big money" statistics.
Short-sellers and institutions
A look at the buying trends of institutional investors and the activity of short-sellers are two great starting points. Institutional investors like hedge fund managers and mutual fund managers have a lot of experience in choosing investments, and they have access to the most sophisticated research. If they're buying a stock, it's a signal to take a second look.
As for short-sellers, they are also considered very knowledgeable due to the stringent requirements and background checks they are held to (this is because short-selling involves large amounts of borrowing).
To demonstrate these ideas, we ran a screen on stocks trading near their 52-week lows for those seeing bullish trends from both short-sellers and institutional investors -- decreases in shares shorted m/m and significant net institutional purchases over the current quarter.
Do you think these stocks may soon rebound? Use this list as a starting point for your own analysis.
List sorted alphabetically. (Click here to access free, interactive tools to analyze these ideas.)
1. Sangamo Biosciences
2. Digital River
3. Central European Distribution
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 Alexander Crawforddoes not own any of the shares mentioned above. Institutional data sourced from Fidelity, short data sourced from Yahoo! Finance.
Motley Fool newsletter services have recommended buying shares of Central European Distribution and Digital River. Try any of our Foolish newsletter services free for 30 days. 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 has a disclosure policy.