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TheStreet Open House

Hedge Funds Are Buying These 4 Stocks Under $5 With Encouraging Sales Trends

Do you consider a company's sales trends when evaluating their stock? One idea is to compare their trends in revenue to their trends in accounts receivable.

Receivables are the portion of revenue not yet received, and since there is no guarantee that the money will ever be received, the smaller the portion of revenue the better. To demonstrate this, we ran a screen on small-cap stocks with market caps just above $300 million for those trading between $1-$5, considering many investors prefer to invest in a low price range.

Why this price range? While many investors enjoy a certain thrill that comes with trading penny stocks, it's a dangerous game. So to avoid the inherent dangers, we turn to the larger companies that are still offered at lower prices.

We then screened for those with positive trends in revenue relative to accounts receivable: increases in revenue outpacing increases in accounts receivable year-over-year, as well as accounts receivable comprising a smaller portion of current assets over the same time period.

Finally, we screened for those 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.

Interactive Chart: Press Play to compare changes in market cap over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research. Tool provided by Kapitall. Click the image to enlarge, and login (it's free) to access more research tools and practice portfolios to test your investing ideas 

 

Do you think these companies are seeing strong sales patterns? Use this list as a starting point for your own analysis. [ Access a  performance overview  for all stocks in the list.]

 

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