Do you associate with the term "contrarian investor"? If so, you may be intrigued by the following three companies, all recently dumped by hedge funds but experiencing positive sentiment from company insiders. What's more, these companies also have a history of beating analyst expectations.
Institutional selling (net sales of a company from mutual funds, hedge funds, pensions, and bank trust departments) signals that sophisticated investors believe there is more downside than upside to the names. These firms often have more money and access to research than the average investor, and therefore are assumed to make better investment decisions.
If that's the case for the three names below, why are they attracting positive attention from their company insiders? Insider executives know a lot more about their company's prospects than most other investors, so if they're using their own money to buy the shares of their employers, it's probably a good idea to pay close attention to their bullishness.
More intriguing is that these companies have a history of positive earnings surprises -- meaning they have reported better-than-estimated earnings for several quarters. Do institutional investors think their winning streak is up?
We screened a universe of companies with market caps above $300 million for net institutional selling in the current quarter and net insider buying in the past six months. We then searched for the names with track records of positive earnings surprises.
We were left with three companies.
Institutions are selling, but insiders think there's more upside to these names. Which group of investors do you think will be happiest with their trades? (Click here to access free, interactive tools to analyze these ideas.)
1. Kona Grill
2. Hercules Offshore
3. Lincoln Educational Services Corp.
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. List compiled by Eben Esterhuizen, CFA.
Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above. Institutional data sourced from Fidelity, EPS and insider data sourced from Yahoo! Finance.