5 Favorite Stocks From the Pros

ADT

Institutional investors have been picking up shares of ADT (ADT) with both hands since it spun off from Tyco International (TYC) back in September. All told, funds and investment firms picked up 190 million shares of the $11 billion security firm last quarter. That brings their stake in the stock to $9 billion.

ADT provides security, fire, and carbon monoxide monitoring services to 6.4 million homes and small businesses. The security business comes with some big benefits for firms such as ADT. For starters, customers sign lucrative, relatively long-term contracts to add ADT's services, a practice that keeps multi-year retention rates extremely high. And because customers go to the trouble (and expense) of installing ADT hardware on their premises, switching costs are even higher.

As ADT expands the offerings that its Pulse platform can carry (such as surveillance cameras and electronic thermostats), it also opens the door to considerable add-on revenues. A strong balance sheet and huge recurring cash flow generation round out the picture at ADT. Relative strength has been excellent for this stock; shares have rallied more than 28% since the spin-off took effect last September, and investors should expect more of the same in 2013.

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