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Analysts often follow the buying trends of institutional investors, such as hedge fund managers and mutual fund managers, because those investors spend more time analyzing companies and have more information about them than most investors.

That is why they’re referred to as the “smart money.”

We ran a screen on stocks trading under $3 for those seeing significant net institutional purchases over the current quarter.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.



We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.

Click to enlarge


Do you think the smart money is calling it right on these names? Use this list as a starting point for your own analysis.

List sorted by net institutional purchases as a percent of share float.

1. Quantum Corporation (NYSE:QTM): Data Storage Devices Industry. Market cap of $435.97M. Price at time of writing (11:30 A.M. EST) at $1.99. Net institutional shares purchased over the current quarter at 21.4M, which is 9.94% of the company's 215.27M share float. This is a risky stock that is significantly more volatile than the overall market (beta = 3.26). The stock has had a couple of great days, gaining 5.03% over the last week.

2. Claude Resources, Inc. (NYSEMKT:CGR): Gold Industry. Market cap of $316.29M. Price at time of writing (11:30 A.M. EST) at $1.95. Net institutional shares purchased over the current quarter at 12.8M, which is 7.85% of the company's 163.14M share float. The stock has gained 66.38% over the last year.

3. Sonus Networks, Inc. (NASDAQ:SONS): Communication Equipment Industry. Market cap of $668.42M. Price at time of writing (11:30 A.M. EST) at $2.40. Net institutional shares purchased over the current quarter at 13.7M, which is 5.84% of the company's 234.74M share float. The stock is a short squeeze candidate, with a short float at 7.69% (equivalent to 6.1 days of average volume). The stock has performed poorly over the last month, losing 19.46%.

4. FelCor Lodging Trust Inc. (NYSE:FCH): REIT. Market cap of $320.14M. Price at time of writing (11:30 A.M. EST) at $2.69. Net institutional shares purchased over the current quarter at 6.1M, which is 5.62% of the company's 108.61M share float. The stock is a short squeeze candidate, with a short float at 5.99% (equivalent to 5.62 days of average volume). The stock has performed poorly over the last month, losing 50.1%.

5. Standard Pacific Corp. (NYSE:SPF):
Residential Construction Industry. Market cap of $493.09M. Price at time of writing (11:30 A.M. EST) at $2.61. Net institutional shares purchased over the current quarter at 4.7M, which is 4.47% of the company's 105.24M share float. This is a risky stock that is significantly more volatile than the overall market (beta = 2.26). The stock is a short squeeze candidate, with a short float at 11.18% (equivalent to 8.64 days of average volume). The stock has had a couple of great days, gaining 12.16% over the last week.

*Institutional data sourced from Fidelity, 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.

Source: 5 Smart Money Picks Trading Under $3