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Mary-Lynn Cesar, Kapitall: Insider and hedge fund stock picks don't always overlap, but when they do it makes for an interesting list.
The following stock list is all about the investment habits of others. We're not talking about regular investors — we're focusing on insider and hedge fund stock pickers because they're among the most knowledgable investors out there.
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Insiders are company employees and have valuable insight into their firm that other investors lack. They also are more familiar than most people with the industry, their competitors, and the demand for their goods and services. When these insiders decide to buy stock based on what they know about a company, their actions are either insider trading (illegal) or insider buying (legal).
The nature of the information driving the investment marks the difference between the two. Insider trading uses privileged information that has yet to be disclosed
while insider buying relies on public information and a strong belief that the company is undervalued.
Insider buying shows that company employees are bullish about the stock's future, so we began today's screen by constructing a universe of stocks with
net insider buying in excess of 2% of share float over the past six months.
Next, we took a look at the habits of institutional investors. These investors pool tons of money together, which they then invest in securities and other financial assets. They employ experienced analysts who maintain a comprehensive understanding of the economic landscape and a company's finances. This allows the analysts to evaluate earnings potential and future growth in a way that a regular investor likely can't. Hedge funds, insurance companies, mutual funds, and pension funds are examples of these big money investors.
Therefore, when these investors buy a considerable amount of a company's stock, they also expect the stock to outperform in the future. We screened our list for stocks with
significant net institutional purchases over the last quarter representing at least 5% of share float.
We were left with seven insider and hedge fund stock picks on our list.