For this stock list we looked for companies with effective management strategies that are favored by the "smart money," or institutional investors.
To create the list below, we began with a universe of stocks with return on assets (ROA) at least 3% higher than the industry average. ROA is the result of dividing a company's annual earnings by its total assets, and it shows how adept management is at using its assets to generate earnings.
Next we looked for stocks with bullish sentiment from institutional investors, with significant net institutional purchases over the last quarter representing at least 5% of share float. This indicates that institutional investors such as hedge fund managers and mutual fund managers expect these names to outperform into the future.
We then screened for stocks with strong sales trends illustrated by faster growth in revenue than accounts receivable year-over-year, as well as accounts receivable comprising a smaller portion of current assets over the same period. Since accounts receivable is the portion of revenue yet to be received, and there is no guarantee the money will be received, the smaller the portion of revenue attributed to accounts receivable, the healthier the revenue.
For an interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research.
Do you think hedge funds are calling it right with these names? Use this list as a starting point for your analysis.
1. AFC Enterprises Inc. (AFCE): Develops, operates, and franchises quick-service restaurants under the trade names of Popeyes Chicken & Biscuits and Popeyes Louisiana Kitchen.
- Market cap at $775.25M, most recent closing price at $32.41.
- TTM Return on Assets at 20.08% vs. an industry average at 10.5%.
- Net institutional purchases in the current quarter at 1.9M shares, which represents about 9.09% of the company's float of 20.91M shares. The 2 top holders of the stock are FMR LLC. and Chilton Investment Group, LLC.
- Revenue grew by 30.85% during the most recent quarter ($47.5M vs. $36.3M y/y). Accounts receivable grew by 4.29% during the same time period ($7.3M vs. $7M y/y). Receivables, as a percentage of current assets, decreased from 14.49% to 13.47% during the most recent quarter (comparing 12 weeks ending 2012-12-30 to 12 weeks ending 2011-12-25).
2. Intuitive Surgical, Inc. (NASDAQ:ISRG): Designs, manufactures, and markets da Vinci surgical systems for various surgical procedures, including urologic, gynecologic, cardiothoracic, general, and head and neck surgeries.
- Market cap at $19.64B, most recent closing price at $489.16.
- TTM Return on Assets at 17.94% vs. an industry average at 6.31%.
- Net institutional purchases in the current quarter at 2.7M shares, which represents about 6.8% of the company's float of 39.72M shares. The 2 top holders of the stock are Capital World Investors and Baillie Gifford and Company.
- Revenue grew by 23.47% during the most recent quarter ($611.4M vs. $495.2M y/y). Accounts receivable grew by 15.15% during the same time period ($345.1M vs. $299.7M y/y). Receivables, as a percentage of current assets, decreased from 20.87% to 18.21% during the most recent quarter (comparing 3 months ending 2013-03-31 to 3 months ending 2012-03-31).
3. RDA Microelectronics, Inc. (NASDAQ:RDA): Designs, develops, and markets radio-frequency and mixed-signal semiconductors for cellular, broadcast, and connectivity applications.
- Market cap at $74.38M, most recent closing price at $9.24.
- TTM Return on Assets at 17.61% vs. an industry average at 9.67%.
- Net institutional purchases in the current quarter at 3.0M shares, which represents about 11.92% of the company's float of 25.16M shares. The 2 top holders of the stock are Warburg Pincus LLC. and Federated Investors, Inc.
- Revenue grew by 40.37% during the most recent quarter ($115.61M vs. $82.36M y/y). Accounts receivable grew by -26.93% during the same time period ($31.72M vs. $43.41M y/y). Receivables, as a percentage of current assets, decreased from 18.97% to 14.93% during the most recent quarter (comparing 3 months ending 2012-12-31 to 3 months ending 2011-12-31).
* Institutional data sourced from Fidelity, accounting data sourced from Google Finance, all other data sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: Business relationship disclosure: Kapitall is a team of analysts. This article was written by Mary-Lynn Cesar, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.