What are we looking for?
We want to know where the professionals might be putting their money. Specifically, we are looking for the stocks that institutional investors are buying, or likely to buy.
What we found
Yesterday we looked at utilities and telecoms. Today's screen looks at financials. We have limited the list to Canadian-listed stocks, generating a dozen names that ranked in the top 85th percentile. They include banks, insurance companies, wealth management firms and, at the top, stock exchange operator TMX Group Inc.
More about today's screen
The data come from StarMine, a Thomson Reuters service that ranks analysts and gathers earnings estimate data to which it applies proprietary research to detect momentum and other factors.
The measurement we are using here is called the StarMine SmartHoldings model. The model is based on an assessment of stocks whose fundamental factors, such as price-to-earnings and debt-to-equity ratios, most closely align with the buying patterns used by institutional investors.
The underlying assumption of the model is that institutional investors buy based on a particular set of criteria that they apply to stocks. Using a proprietary algorithm, StarMine claims to have deconstructed the formulas used by a large number of institutional investors. It then aggregates the results, which it in turn applies to stocks around the world. The result "accurately predicts which stocks will see an increase or decrease in institutional ownership," StarMine says.
Today's screen lists the stocks by their percentile rank relative to others in the financial services industry in Canada. These equities are the ones most likely to see an increase in institutional ownership, according to StarMine. The screen also shows the stocks' percentile ranking versus all other stocks in Canada. Lastly, it rates them by their relative appeal to institutional investors compared with all global stocks. For fun, we have also listed analysts' upgrades and downgrades over the past 60 days, to see how outlooks of the buy side and the sell side might compare.
Tomorrow, we will run a screen using the StarMine SmartHoldings model that looks at stocks in the industrial sector.