It's a stock market fact that institutional buying and selling - moves by pension funds, mutual funds, endowments and like - account for the vast majority of the movement in equity prices. Collectively, individual investors represent a fraction of the buying power that institutional investors command. Each quarter, investment funds with over $100 million dollars in assets must report their quarterly holdings to the SEC. From these filings, Value Line - one of my favorite investment research tools - publishes a list of top institutional purchases during the quarter.
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Surprising Name at the Top
Combing through hundreds of filings, the folks at Value Line identify names with the highest increase in shares held. To be sure, institutional investors are always buying and selling stock so purchases made in the third quarter are probably not as accurate today. Nevertheless it is an interesting list because it can yield additional clues about what type of stocks or industries the big money is looking.
It may come as surprise to many that Citigroup (NYSE:C) was an institutional favorite with nearly a 5% increase in shares held during the quarter. At $4.63 shares in Citigroup have moved up nicely in the past several weeks but still trade at a 20% discount to book. The company has spent the past several years shedding assets and improving the balance sheet. This institutional push could be a sign that Citi is on a stable path to recovery. (For more, see Deep Discount To Book Value Stocks.)
The biggest institutional buy was Zimmer Holdings (NYSE:ZMH), a manufacturer of medical implants and other related surgical products. Institutions increased their shares held in Zimmer by nearly 17% in the third quarter. Shares look fairly priced at 12 times forward earnings and the company has a clean balance sheet.
Different Strokes for Different Folks
Institutional investors were buying across various industries in the quarter. Another huge purchase was casino operator Wynn Resorts (Nasdaq:WYNN) with a 14% increase in shares held. As debt markets improved in 2010, the highly levered casino stocks went on a tear. Wynn shares today trade for $105 and 45 times forward earnings. It's unclear what the institutions are seeing in this case.
Insurance businesses were a favorite of institutions in third quarter. MetLife (NYSE:MET) and Aon Corp (NYSE:AON) were both on the top of the list of major institutional purchases. Both companies trade at decent multiples. Yet MetLife trades at 80% of book while Aon trades at over 200% of book value, respectively.
A Great Stock Screen
Looking at a list of top institutional buys is a great stock screen - not a buy list. And the inherent lag time between the publication of such a list and the actual purchasing is an even more compelling reason that names on the list should be analyzed carefully before making any decisions. (For related reading, check out Institutional Investors And Fundamentals: What's The Link?)
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