| The
Growing Importance of Institutional Ownership |
Published: April 14, 2006
Institutional buyers dominate
the trading in most stocks, and in recent years institutional ownership
has become more important than ever. In fact, Americans now invest
approximately 80% of their savings in mutual funds -- a staggering
figure considering that the same statistic stood at just 20% back in
1980. Total assets invested in U.S. mutual funds now reach nearly $10
trillion and it is estimated that mutual funds control 22% of all
trading volume in publicly traded U.S. securities.
But mutual funds aren't the
only important institutional players on Wall Street. The hedge fund
industry has been growing rapidly in recent years. Although it was once
a fairly unknown industry limited exclusively to the ultra-rich, hedge
funds now boast more than $1 trillion in assets in the U.S. alone. The industry has also been growing around +20% annually, meaning
it could more than double in size over the next four years.
Given these facts, it's
extremely important for small investors to take the flow of
institutional funds into account when making investment decisions.
Institutions control vast investment dollars and the actions of
institutional players can have a profound effect on a stock's price.
When searching for quality
stocks that have the potential to deliver outsized gains, my staff and I
often look for companies that have solid growth and excellent future
prospects but are, as of yet, largely undiscovered by major institutions. In
other words, we often search for companies with small institutional
ownership -- firms where institutions own less than 15% of the shares.
If and when institutions decide to pile into such stocks, the effect of
all those inflows can power a dramatic rally in the shares.
With this in mind, my staff and
I recently devised a screen to help us identify companies with strong
fundamentals and solid growth prospects, yet little institutional
ownership. We combed through our database of roughly 10,000 securities
in search of stocks with the following characteristics:
-- Market capitalization above
$150 million
-- Operating margin (ttm) of greater than 10%
-- 5-year annualized EPS growth rate above +10%
-- Projected long-term annual EPS growth above +15%
-- Institutional ownership less than 15%
After running the above
criteria through StreetAuthority's advanced screening software, we came
up with the following list of large, well-known companies with low institutional
ownership . . .
Editor's
Note:
Throughout the remainder of this article, StreetAuthority.com founder
Paul Tracy and his staff provide a table of well-known companies that
sport unusually low levels of institutional ownership. If institutions begin to pile into these stocks,
then their share prices could
rally sharply higher. To view the remainder of this article, you'll need to
subscribe to our premium Market Advisor newsletter. Please
visit one of the following links to continue...
Good investing!
-- Paul Tracy
Editor
StreetAuthority
Market Advisor
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Paul Tracy
founded StreetAuthority and became Chief Investment Strategist in 2001. Prior to
that he spent several years as Managing Editor at a multi-million dollar
financial publishing firm with over 150,000 subscribers. In addition to
his role as managing editor and lead financial writer, he was also
responsible for equity research and managing a team of seasoned
professional financial writers, researchers and market commentators.
Paul's previous experience
includes a position at Robert W. Baird & Co.'s full-service
brokerage operations as well as economic research work on a Money and
Banking project funded by the National Bureau of Economic Research. He
has also spent time doing outside consulting and research for the
University of Virginia, has appeared as a guest expert on several
prominent financial radio shows, and has been a featured speaker at
various investment conferences across the U.S.
Paul graduated with a B.S.
in Finance and Management from the McIntire School of Commerce at the
University of Virginia.
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