Looking for stocks that have strong profitability and bullish sentiment from hedge funds? Here are some ideas to get you started.
Profitability margins such as gross margin are helpful to gauge how much profits a company is taking from its revenues. Specifically, gross margin is the profit after deducting "cost of goods sold," which includes inventory. Therefore, companies with higher gross margins are more profitable and have a greater control of their costs.
Gross Margin = Gross Profit / Revenue
For companies that sell physical inventory, gross margin is a very important measure because cost of goods sold is usually the largest expense on the income statement.
We started with a universe of companies with market caps above $300 million. We ran a screen for stocks with high profitability by searching for those that are seeing consistent increases in gross margin over the last four years, indicating that the stocks are keeping a greater portion of revenue as profits.
We then screened these stocks for names that have experienced the most significant levels of net institutional buying in the current quarter.
Institutional buying (net purchases from mutual funds, hedge funds, pensions, and bank trust departments) signals that sophisticated investors believe there is more upside than downside to the names.
Do you think the "Smart Money" is calling it right on these companies? (Click here to access free, interactive tools to analyze these ideas.)
1. Booz Allen Hamilton
2. Cornerstone OnDemand
4. ITT Educational Services
5. Endeavour Silver Corp.
8. Home Properties
9. Newcastle Investment Corp.
10. TIM Participacoes S.A.
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 data sourced from Fidelity. Accounting data sourced from Google Finance.