Looking for stocks with bullish backing from sophisticated investors and attractive technical ratios? We created a list with this in mind.
We began by screening for companies with a price to sales ratio of 2 and below. In other words, one dollar of share price is worth at most $2 in sales. We chose this limit after speaking with Neil Hennessy, Portfolio Manager and Chief Investment Officer of The Hennessy Mutual Funds, who said this is one of his favorite investing strategies. Be mindful that this ratio does not account for expenses or debt, and that there is normal variation between industries.
Lastly, we screened for significant buying activities of institutions, such as hedge funds, and company insiders - because their investment decisions are often the result of more information than the average investor.
Insiders, naturally, work at the companies in question and have more knowledge about the firm than outsiders. When they put their own money on the line to purchase their company's shares it indicates they are bullish about the firm's future, and believe current share price is undervalued. Likewise, institutions have more sophisticated market data than the average main street investor, and their purchase decisions presumably come after careful analytical work.
For an interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research.
Tool provided by Kapitall (www.kapitall.com).
We were left with 4 names. Do you agree with institutions and insiders that these names are trading at reasonable, if not undervalued, prices? Use this list as a starting point for your own analysis.
List Average 1-Year Return: -5% (see here).
1. Heritage-Crystal Clean, Inc (NASDAQ:HCCI): Provides industrial and hazardous waste services to small and mid-sized customers in the United States. Market cap at $317.31M, most recent closing price at $17.56. Price/Sales ratio: 1.54. Net institutional purchases in the current quarter at 2.7M shares, which represents about 30.68% of the company's float of 8.80M shares. Over the last six months, insiders were net buyers of 205,424 shares, which represents about 2.33% of the company's 8.80M share float.
2. Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS): Provides engineering, war fighter, security, and information technology services, solutions, and products in the United States. Market cap at $314.87M, most recent closing price at $5.57. Price/Sales ratio: 0.97. Net institutional purchases in the current quarter at 2.9M shares, which represents about 6.55% of the company's float of 44.26M shares. Over the last six months, insiders were net buyers of 11,127,500 shares, which represents about 25.14% of the company's 44.26M share float.
3. Navistar International Corporation (NYSE:NAV): Through its subsidiaries, manufactures and sells commercial and military trucks, buses, diesel engines, recreational vehicles (RVs), and chassis, as well as provides service parts for trucks and trailers. Market cap at $1.47B, most recent closing price at $18.51. Price/Sales ratio: 1.97. Net institutional purchases in the current quarter at 3.4M shares, which represents about 7.17% of the company's float of 47.39M shares. Over the last six months, insiders were net buyers of 4,064,960 shares, which represents about 8.58% of the company's 47.39M share float.
4. Texas Industries Inc. (NYSE:TXI): Engages in the production and supply of heavy construction materials in the United States. Market cap at $1.2B, most recent closing price at $42.74. Price/Sales ratio: 0.5. Net institutional purchases in the current quarter at 821.6K shares, which represents about 6.51% of the company's float of 12.62M shares. Over the last six months, insiders were net buyers of 250,806 shares, which represents about 1.99% of the company's 12.62M share float.
Insider data sourced from Yahoo! Finance, institutional data 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.
Business relationship disclosure: Kapitall is a team of analysts. This article was written by Rebecca Lipman, 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.