Institutional Investors: Follow The Leader

By Investopedia | June 18, 2009 AAA

With so many investors unsure of what will happen in the markets, a lot of individual investors are wondering where to put their hard-earned cash. One place to look for answers is institutional investors. Banks, pension funds, life insurance companies and hedge funds have a great amount of influence over the markets, and by finding the stocks that are favored by these institutional investors we might be able to piggy-back our way to some nice returns.

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Financially Savvy
Now I know what you may be thinking, "aren't these the people that are to blame for this global recession?" In a word, yes. However, the fund managers of these institutions are still some of the most financially savvy investors in the world, and in these historically uncertain times I would rather put my trust in them than the advice of some average joe investor. That being said, let's take a look at five stocks that are currently popular with institutional investors.

Company Market Cap
(Billions)
Shares Owned by Institutional Investors
Wyeth(NYSE:WYE) 59 80 %
CVS Caremark Corp. (NYSE:CVS) 45 84 %
Target Corp. (NYSE:TGT) 29 87%
Thermo Fisher Scientific (NYSE:TMO) 17 95 %
Lockheed Martin Corp. (NYSE:LMT) 32 87 %

Great Expectations
I carefully selected these five stocks because I believe they are all well-managed companies with strong growth potential for the coming years. If I had to choose one company that really excites me it would have to be Thermo Fisher Scientific. TMO is one of the market leaders in providing equipment, instruments, software and other services for research, analysis and manufacturing. TMO operates mainly in the pharmaceutical, biotechnology and clinical research industries. I am a strong believer that these industries along with the medical sector as a whole will be a leading market driver in the years to come. President Obama has been on a mission to reform America's healthcare system and extend healthcare to millions who don't have it. This along with the president's vision of the technology sector leading the American economy into the next decade, one can't help but look at a company like TMO and expect great things.

Profit Potential
The stock currently trades around $40.60 and has recovered nicely from it's 52-week low of $26.65 in late November. Although TMO has struggled in the past year with significantly lower revenue numbers and lower guidance in the past quarter, I do like the fact that the company's price-to-book ratio of 1.12 is quite low, especially when compared to its industry. As well, Thermo Fisher's five year sales growth estimate is an incredible 40%.

Bottom Line

At this point in time I am looking very closely at stocks which are heavily held by institutional investors and finding potential big-gainers from that pool. Thermo Fisher Scientific looks to me like it has the potential to show significant gains in the coming months and years. And obviously I'm not the only one that feels the same. (For more, check out The Pros And Cons Of Institutional Ownership.)

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