One of the great maxims of traders and Wall Street pros is to follow the "smart money."
I'm not much for the thesis that institutional shoppers tend to make smarter investing decisions, but many of you who've read my ruminations on insider buying say you'd also like to know how the Big Money is betting. Your wish is my command.
Next up: Acme Packet
|CAPS stars (out of 5)||**|
|Bullish pitches||51 out of 58|
|Highest-rated peers||Digi International, Spirent Communications, Network Engines|
Data current as of April 1.
We know two things about the Internet and mobile networks right now. First, there's more digital data flowing today than ever before. Overall traffic grew 62% last year after a 74% gain the year prior, researcher Telegeography reports. The promises of streamed entertainment and cloud computing have made us ravenous consumers of bandwidth.
Second, most carriers still aren't ready to deliver 4G speeds. They'd better hurry up and get there. If a Cisco Systems
There are multiple ways for investors to play these trends. One of the best, though most misunderstood, is through infrastructure upgrades. The Internet's peering points need updating, preferably in the form of optical networking systems from the likes of Infinera
Cloud computing also increases the need to manage network border points. By "border points," I mean dividing areas inside a network or between networks. These spaces need translators for sharing data effectively between carriers, digital sentries for keeping data secure, and traffic cops to ensure the right data "packets" (all data is broken down into packets) move in the order they were intended to.
Acme Packet's session border controllers provide all this and more, and have since the company invented the category in 2000. Co-founders Andy Ory and Patrick MeLampy still run the business and own more than 14% of the outstanding shares.
Institutional ownership history
|Bank of America, Asset Mgmt.||4,979,094||4,982,208||4,572,073||4,572,073|
|Wellington Management Co.||-||7,000||2,966,419||2,966,419|
|The Vanguard Group, Inc.||664,374||1,118,777||1,603,377||1,603,377|
|TOP 25 TOTAL||6,478,112||14,854,272||36,763,651||36,763,651|
Source: Capital IQ, a division of Standard & Poor's.
*Indicates the number of shares owned.
Big Money investors love this story, and big names that bet early -- such as Fidelity and BlackRock -- have enjoyed huge gains. Shares of Acme Packet have more than quadrupled since the company debuted on the public markets in October 2006.
Interestingly, institutional investors have continued buying in each of the past six quarters. Among mutual funds, the mid-cap growth Brandywine (BRWIX) fund opened a new position in Acme Packet in the December quarter, around the same time that manager Steve Wymer added shares to his highly rated Fidelity Growth Company (FDGRX) fund.
Competitor and peer checkup
Source: Capital IQ. Data current as of April 1.
Both funds have enjoyed this year's 27% rally, but I suspect both funds intend to hold as long as possible given the predictably massive investment needed to undergird the modern Internet. Acme Packet has become an essential part of the digital infrastructure.
Looking at this table, I get the sense that both Ory and MeLampy understand the extraordinary position they find themselves in. Unlike the founding teams of most of their competitors, they continue to hold a significant stake in the business.
Both also took substantial pay cuts in cash compensation when revenue growth stalled during the Great Recession of 2008. That's an extraordinary step that shows a commitment to the company and its shareholders. And it's just one of many reasons we added this stock to our Motley Fool Rule Breakers scorecard in September, and continue to recommend it today.
Do you agree? Disagree? Use the comments box below to let me know how you would rate Acme Packet. You can also recommend other stocks for me to evaluate by sending me an email, or replying to me on Twitter.
The Motley Fool recently introduced a free My Watchlist feature that allows users to stay ahead of the curve and receive up-to-date news on companies like Acme Packet, or any of its competitors. To get up-to-date Acme Packet news and analysis, add the company to your watchlist today:
Acme Packet and Infinera are Motley Fool Rule Breakers recommendations. Infinera is also a Motley Fool Hidden Gems selection. BlackRock is a Motley Fool Inside Value pick. Juniper Networks is a Motley Fool Big Short selection. Motley Fool Alpha LLC owns shares of Cisco and has a short position in Juniper Networks. Try any of our Foolish newsletter services free for 30 days.
Fool contributor Tim Beyers is a member of the Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. 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 owns shares of Bank of America and has created a bull call spread position in Cisco. The Fool is also on Twitter as @TheMotleyFool. Its disclosure policy is smarter than the average bear.