Something you need to make note of: technology and growth stocks are being sold by institutional investors. Following where the professional money is flowing gives us another tool to evaluate the stock markets and get a sense of what is happening. The pros generally have better access to a company’s executives and management and may be privy to better information, although 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. However, if you were a top Wall Street analyst, your call would likely be connected.
So, now that we’ve established that the pros have an information advantage, your key task is to find out what these pros are buying or selling.
The concept of following the money of institutional investors is based on the belief 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 who are tops in the money management business, because they are the very best and produce the best returns for clients.
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 before taking a position that far exceeds the research done by retail investors.
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 in technology and growth stocks. Apple Inc. (NASDAQ/AAPL) was trading at $644.00 on April 10, but the stock has been on a steady decline down to the $570.00 level. A closer look at the institutional investors’ ownership shows a 3.09% net sale of Apple stock over the last quarter to quarter, representing 19.23 million net shares sold by institutions (Source: Thomson Financial). But, while there’s near-term pressure, Apple remains king in the growing tablet market, which I discussed in Tablet Market Gaining Altitude.
I see a pattern with the net selling of other key technology stocks, including heavy selling in priceline.com Incorporated (NASDAQ/PCLN), with 2.96 million net shares sold, down 6.26% in institutional ownership. Others seeing institutional selling include Google Inc. (NASDAQ/GOOG, -1.66%) and Amazon.com Inc. (NASDAQ/AMZN, -2.19%).
In retail, Wal-Mart Stores, Inc. (NYSE/WMT) is being sold.
In the restaurant sector, there is heavy selling in Chipotle Mexican Grill, Inc. (NYSE/CMG), with a 9.43% decline in institutional ownership, and McDonald’s Corporation (NYSE/MCD), at a 3.88% decline.
There’s buying in some of the big dividend paying stocks, with the exception of the embattled bank stocks.
We are seeing some big-time buying in utility services company Exelon Corporation (NYSE/EXC), with 55.82 million net shares bought by institutional investors over the past quarter to quarter, up 9.8% in institutional investor ownership. There’s some minor buying surfacing in The Procter & Gamble Company (NYSE/PG).
The bottom line is that you need to monitor what institutional investors are doing to get a sense of which stocks could be moving and in which direction.