Are you looking for stocks that have demonstrated an ability to surpass both industry peers and overall market performance? You're in luck, because for this list, we capitalized on the concept of "momentum investing" to find rallying companies that have also proved themselves more profitable than their competitors -- all while receiving favorable attention from institutional investors.
Technical analysis -- which mostly focuses on past price and volume data -- is very different from the traditional methods of fundamental stock analysis, but it can offer an interesting perspective of where stocks are and where they may be going.
One of the most popular technical indicators is momentum -- the idea that recent trading trends for a stock may persist as more investors follow suit. For instance, a stock that is trading above its 20-day, 50-day, and 200-day moving averages (MA) is clearly surrounded by positive investor sentiment, and that idea may resound with investors for some time to come.
To increase the quality of our list, we ran an additional screen for those that have beaten out their competitors, based on gross, operating, and pre-tax profit margins over the last 12 months. Here's a quick breakdown of what that means:
- TTM Gross margin: This metric tells us the percentage of a company's revenue that's left after paying the costs for production of inventory.
- TTM Operating margin: This tells us the percentage remaining after all operating expenses are paid. Operating expenses include: supplies, repairs, research and development, and depreciation.
- TTM Pre-tax margin: A company's earnings before taxes. This incorporates all of the expenses associated with business excluding taxes.
We screened these highly profitable stocks on a rally for those with the highest net buying from institutional investors over the current quarter. Institutions include mutual funds, hedge funds, pensions, bank trust departments, and they often have access to more sophisticated research than the average investor.
If institutional investors start investing in a company, other investors can assume that some of the most talented analysts and money managers expect the company's share prices to increase over time.
The "smart money" thinks these profitable stocks have the momentum to push even higher -- do you?
List sorted by institutional buying. (Click here to access free, interactive tools to analyze these ideas.)
1. First Republic Bank
2. IPC The Hospitalist Company
4. Saul Centers
5. Select Comfort
6. BE Aerospace
9. Federal Realty Investment Trust
10. DuPont Fabros Technology
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 Rebecca Lipman does not own any of the shares mentioned above. Institutional and profitability data sourced from Fidelity, all other data sourced from Finviz.