What do company insiders and big institutional players know about a stock that the ordinary investor doesn't? Plenty.
If a company's insiders (directors, officers, or other key employees) are buying its shares, many investors view that as a bullish sign. After all, the reasoning goes, insiders have a front-row seat from which to view a company's future prospects—and whether the shares are attractively valued. (Of course, the notion also applies to insider selling, which we'll tackle in a future screen.)
Another ownership statistic tracked by investors is the degree to which big institutions like mutual funds and pension funds hold a company's shares. Their managers are supposed to have access to high-level fundamental and technical research to help them make their buying decisions, so the fact that they have decided to buy a significant number of a company's shares is a bullish indicator for some investors.
Firing on All Cylinders
For this week's screen, we decided to find stocks with positive signals on both fronts. We searched for issues where both the percentage of total shares outstanding owned by institutions (last quarter vs. the prior quarter) and insider shares purchased (net of insider sales) are in the highest 20% of stocks in the entire U.S. equity universe. (BusinessWeek.com readers can get more detailed information on insider-buying activity and institutional ownership for a company by clicking on the Ownership tab above the stock-price chart on the company's quote page.)
And while it's nice to think that these shares are highly regarded by muckety-mucks inside and outside the company, we wanted to confirm their attractiveness in another way. For our next filter, we looked for those stocks carrying an S&P Quality Ranking—which measures growth and stability of earnings and dividends over a 10-year period—of B or better.
To avoid speculative issues, each stock had to be priced above $5 per share and have a $500 million market capitalization.
When we finished our search, these five names turned up.
|American Capital Strategies (ACAS)|
|Enterprise Products Partners (EPD)|
|Freeport McMoran Copper (FCX)|
|M&F Worldwide (MFW)|
|Trustco Bank Corp. NY (TRST)|