What are we looking for?
Stocks with a high percentage of institutional ownership and a high level of buying among corporate insiders.
With U.S. stock markets within a few percentage points of their all-time highs, finding stocks poised for future price and earnings growth becomes a difficult task.
Who would be best poised to judge the future growth prospects of a company? Corporate insiders, such as officers and directors, often have unique insights since they have an in-depth understanding of the company's business and its growth prospects. Similarly, institutional investors with large research teams are deemed to have a better-than-average understanding of a company's growth prospects.
We begin by setting a minimum market capitalization threshold of $5-billion (U.S.) to focus on larger, more established companies in the U.S. market.
Next, we will look for companies that are loved by institutional investors. We will select companies with institutional ownership of at least 50 per cent but no more than 80 per cent. (A ceiling at 80 per cent was chosen just to ensure enough of a public float; if the percentage of institutional ownership was close to 100 per cent the daily trading volume would be low since there would be fewer shares available for trading.)
We also want to focus on companies with significant buying activities by insiders.
Net insider shares bought is defined as total shares bought minus shares sold by corporate insiders such as officers and directors in the company's last reporting period.
We will focus on companies with at least 200,000 insider shares bought.
Last, in order to filter out any thinly traded companies, we will focus on companies with 90-day average daily volume of at least one million shares.
More about Recognia
Recognia is a global leader in automated quantitative analysis and engagement solutions for retail online brokers and institutions. Recognia's product suite provides actionable trading ideas based on technical and fundamental research covering stocks, ETFs, indexes, forex, options and commodities.
What did we find?
Cisco Systems tops our list with a $157.9-billion market cap and institutional ownership of 78.2 per cent. Once a growth-stock superstar, Cisco has morphed into a more staid large-cap dividend stock with a solid 3.3-per-cent dividend yield. Many pension plans and other institutions own this stock, which explains its very high institutional ownership level.
Phillips 66 has a high level of insider buying with just over 1.1 million shares being purchased by insiders in the past reporting period. In September, Warren Buffett's Berkshire Hathaway purchased an additional one million shares to become a 10-per-cent owner of the company. Phillips's institutional ownership level is also high at 72.6 per cent.
Twenty-First Century Fox Inc. is a multinational media company comprising the broadcasting and film assets of the former News Corp. This stock has the highest level of insider share purchasing of any company on our list with three million shares purchased. Fox also has a high level of institutional ownership at just over 51 per cent. Coincidentally, Berkshire Hathaway owns about nine million shares.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Recognia Inc. in respect of the investment in financial instruments. Investors should conduct further research before investing.
Peter Ashton is vice-president of retail and self-directed investing at Recognia Inc.