Technology stocks have been the focus of the market selling so far in 2012, as the NASDAQ is down nearly eight percent since the end of March and is down 4.4% in November alone.
Technology and growth stocks are being sold by institutional investors, and you should make a note of this. Following where the professional money is flowing helps gives us another tool to evaluate the stock market and get a sense of what is happening. The reality is that the pros generally have better access to the company’s executives and management and may be privy to better information; albeit, they will surely never tell you this. Just try calling the chief executive of a company to talk about things. Your call will never be connected. Yet, if you were a top Wall Street analyst, your call would likely be connected.
So, having established that the pros have an information advantage, you have to find out what they are buying or selling.
The concept of following the money of institutional investors is the belief that these experts are likely to understand the company’s situation more than anyone outside of the executive management group. By looking at the flow of money from institutional investors and monitoring what stocks they are buying, you can get a much better sense of what stocks may be in favor at that time. This especially holds true for the top-ranked institutional investors and money managers, because, being the very best, they produce the top returns for clients.
The reality is that institutional investors control vast sums of capital and can sway the direction of a stock that they buy or sell. These institutional investors are also extremely accountable to their investors; hence, there is a high level of quality research and due diligence, which far exceeds the research of retail investors, before taking a position.
If you adhere to this belief, then following the flow of pro money would make a whole lot of sense.
Looking at some of the recent transactions, you can see some of the top-selling technology and growth stocks. Apple Inc. (NASDAQ/AAPL) was trading at $705.00 on September 21, but the stock has been on a steady decline to the $530.00 level. A closer look at the institutional investors’ ownership shows a 0.8% net sale of Apple stock over the last quarter-to-quarter, representing 4.8 million net shares sold by institutions, according to Thomson Financial. While there’s near-term pressure, Apple remains king in the growing tablet market. (Read “Attention Small Tablet Makers: Apple’s Coming for You.”)
We see a pattern in the net selling of other key technology stocks, including heavy selling of priceline.com Incorporated (NASDAQ/PCLN) with 3.7 million net shares sold, down 8.9% in institutional ownership. Other sellers include Netflix, Inc. (NASDAQ/NFLX), down 31.8% in institutional ownership, and Cisco Systems, Inc. (NASDAQ/CSCO), down nine percent.
In the retail sector, Wal-Mart Stores, Inc. (NYSE/WMT) is being sold, down 4.6% in institutional holdings.
In the restaurant sector, there is heavy selling in Chipotle Mexican Grill, Inc (NYSE/CMG), with a 4.4% decline in institutional ownership, and McDonalds Corporation (NYSE/MCD), down 4.5%.
The vast majority of DOW 30 stocks are seeing institutional investors selling.
We are seeing some big-time buying in consumer products manufacturer Johnson & Johnson (NYSE/JNJ), with 49.6 million net shares bought by institutional investors over the past quarter-to-quarter, up 2.7% in institutional investor ownership. There is some minor buying surfacing in Merck & Co., Inc. (NYSE/MRK).
The bottom line is that you need to monitor what institutional investors are doing to get a sense of what stocks could be moving and in what direction.
The Stocks Institutions Are Buying was last modified: November 16th, 2012 by George Leong, B.Comm.
George Leong is a senior editor at Lombardi Financial. He has been involved in analyzing the stock markets for two decades, employing both fundamental and technical analysis. His overall market timing and trading knowledge are extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi Financial’s popular financial newsletters, including Red-Hot Small-Caps, Lombardi’s Special Situations, Judgment Day Profit Letter, Pennies to Millions, and 100% Letter. He is also the editor-in-chief of a... Read Full Bio »
Forecasts Aug. 27, 2015
Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.
Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.
Estimates Aug. 27, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter)