The Most Active Stocks on the Market

I'm generally skeptical of actively traded stocks. If tens of millions of shares are being traded each day, my job of outsmarting the market becomes that much more difficult. Indeed, this cynicism has been intensified by the misadventures I've had with the actively traded Sirius Satellite Radio in the past year.

Over the past three months, Intel was the most actively traded stock on the market, with more than 67 million shares changing hands each day. Even though Intel is one of the largest stocks on the market (by market cap) and will naturally trade a lot of shares, the statistic still struck me as somewhat odd. After all, Intel investors have lost almost 20% of their investments over the past five years and 10% over the past year alone. Do all the people trading Intel think it's poised for a rebound, or do they just enjoy losing money?

Based on past performance, it seems that Intel bulls and bears are embroiled in a war of attrition, with neither side making any significant headway. But things may be starting to change, at least according to investors participating in Motley Fool CAPS (in beta testing).

CAPS is our brand-new community-intelligence database that asks investors to rate stocks based on their belief that they will outperform or underperform the market. Investors, in turn, are also rated based on their accuracy and the cumulative success of their picks.

Fully 86% of the 1,147 CAPS investors rating Intel believe it will outperform the S&P 500 in the future.

Perhaps some of the Intel optimism among CAPS investors is because it's a Motley FoolInside Value pick, but other notable stock pickers like Martin Whitman, who runs the Third Avenue Value Fund (TAVFX), have added more shares of Intel in the past year.

Dig a little deeper
What about other active stocks? Have they been as stagnant as Intel over the past year? What do investors think about those stocks?

For a quick case study, let's look at the 10 most active stocks over the past three months.

Initially, I expected to find blanket underperformance among the most active stocks. At least based on one-year returns, though, I couldn't have been more wrong. The average one-year return of this group is just over 26% -- a return I'll take any day. Are these great stocks to buy right now? Hmmm. Maybe, maybe not. But I don't think investors should dismiss them out of hand just because they're actively traded.

Get in the game
Each time you buy a stock, there's someone out there who thinks the stock is overvalued and is gladly selling his or her future interest in the stock for your cash now. In every transaction, someone is wrong.

In the most active stocks, this type of transaction happens millions of times each day. Much of that trading is done by large institutions, whose highly paid analysts make the buy and sell calls. Think about that the next time you're considering a purchase or sale in actively traded stocks. Tread carefully, and be sure your investment thesis is sound, because you'll be going up against the big boys, who get paid princely sums to research these stocks.

At the very least, take a look at CAPS and let us know what you think of these stocks. Click here to join the more than 10,000 investors currently participating in this new service. We'd love to hear what you think.

Todd Wenning owns call options on Sirius Satellite Radio. Intel and Microsoft are Inside Value picks. The Fool is investors writing for investors.