What are we looking for?
U.S. stocks that the smart money likes.
Corporate insiders represent some of the smartest money in the market because senior executives and directors have intimate knowledge of their firms' operations and prospects. Pension funds and mutual funds are other particularly well informed investors. When all these groups are buying – or selling – it's a powerful indicator of a stock's potential.
To tap into the collective wisdom of the smart money, Constantin Cosereanu of Bloomberg has constructed a screen that ranks stocks by their attractiveness to insiders and institutional investors. On Wednesday, we looked at its ranking of some Canadian stocks; today, we turn our attention to the U.S. market.
How the screen works
Mr. Cosereanu attempts to identify companies with major buying trends by looking at percentage changes in insider holdings and in institutional holdings. In both cases, a higher value is better. After weighing both factors equally, he converts the result to a score.
To make today's list, a company had to be listed in the United States with a market capitalization of at least $1-billion (U.S.). Institutional buyers of its shares had to outnumber institutional sellers. And there had to be at least a 10-per-cent increase in both insider holdings and institutional holdings.
What we found
A surprising vote of confidence in social media and a less surprising endorsement of energy companies. LinkedIn Corp. and Zynga Inc. top our list, while firms involved in various forms of the oil and gas business also crop up frequently. Remember, though, to research any of the companies on our list before buying.
Ian McGugan