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Large institutional investors have a difficult time hiding their trading activity. Take a mutual fund, for example. With billions of dollars to put to work, taking a position in a company equal to just 2% or 3% of the fund's assets may well mean buying a truly huge stake worth millions of dollars. And when several funds try to buy the same stock over the same time period, that spells tremendous buying interest. Such buying interest naturally tends to push a stock higher. As more and more institutions pile into the stock, the influx of buy orders starts to drive the price higher. This can also act as a sort of cushion when the stock falls in price; institutional investors often use such dips to accumulate more shares. All that buying will show up in the daily volume statistics (volume is a measure of how many shares of stock exchange hands each day). When institutions are getting more active in a particular stock, volume tends to rise. Of course, we're not just interested in a single large volume trade in a particular stock. That could be caused by an individual trader or fund entering (or exiting) a stock. Instead, if you're looking for rising institutional interest, the best sign is steady, consistently rising volume over a lengthy period of time. To measure consistent institutional buying interest, my staff and I typically compare average daily volume over the prior one, three, and six-month time frames. Specifically, we look for companies with accelerating average volume. Volume over the past month should be greater than the average over the past three months, and volume over the past three should exceed the past six. This pattern ensures that volume has been steadily rising over the prior six months -- a sign of sustained buying interest. Of course, steady selling will show up in volume statistics just as surely as steady buying. If you're looking for institutional buying interest, it's a good idea to look for stocks that are seeing steadily rising volume and rising share prices. To that end, my staff and I recently scoured the market for stocks that have delivered gains of at least +20% over the past three months and +30% year-to-date. Therefore, our return criteria places these companies in the top decile (10%) of all domestic stocks in terms of performance over these periods. In addition, we eliminated firms that would be of limited interest to institutional traders. Typically, mutual funds and other large buyers are only interested in highly liquid stocks. If a stock only sees trading activity of 500,000 or fewer shares per day, then it would be difficult for a fund of any size to accumulate or unload a position without significantly impacting the price -- such illiquid stocks are tough for funds to buy. To guard against that, we limited our screen to stocks trading above $10 per share and with at least 500,000 shares in average daily trading volume. And finally, institutional traders are generally attracted to companies with solid growth prospects. Therefore, we required trailing one-year sales growth of at least +20% -- the upper 25% of all domestic stocks. With all of these points in mind, my staff and I scoured the market in search of firms that met the following criteria: -- Average 30-day volume greater than average three-month volume -- Average three-month volume greater than average six-month volume -- One-year sales growth greater than +20% -- Market capitalization of greater than $500 million -- Average daily trading volume greater than 500,000 shares -- Share price of greater than $10 After running these criteria through StreetAuthority's advanced screening software, we came up with the following list of companies . . Important
Note: Throughout the remainder of this article, StreetAuthority
co-founder Paul Tracy provides an
in-depth look at his six favorite shipping stocks.
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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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