Smart Money Investors are Betting on These 5 Undervalued Stocks

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(Written by Alexander Crawford. Target price data and insider data sourced from Thomson/First Call (via Yahoo! Finance), institutional data sourced from Fidelity.)

Stand on the shoulders of giants. Many analysts follow the buying trends of the “smart money” for a look at what highly informed investors think about certain stocks – which stocks are in and which are out.

“Smart money” includes several groups – institutional investors such as hedge fund managers, mutual fund managers, and pension managers. These are highly experienced investors with access to the most sophisticated research.

It can also include company insiders such as members of company boards and upper management, who have first-hand information on their companies – presumably they know more than any other investors when it comes to their companies.

When a stock sees net purchases from smart money investors, it’s a signal that knowledgeable money is moving into these names and other investors should consider them too.

Undervalued Opportunities

Although it’s helpful to find out which stocks smart money investors are buying and selling, it behooves investors to do additional research on the names – for instance, determining whether the stocks are trading at fair valuations.

One way to gauge valuation is by comparing price to analyst target price. A stock’s target price can be used as a proxy for fair value, although it is notorious for being inflated due to analysts’ unshakeable optimism.

We ran a screen on smart money picks that are trading at significant discounts to target price. To control for target price inflation, we used the lowest (most pessimistic) target prices as a benchmark, and we only used stocks with sufficient analyst coverage of 5 or more target prices.

For stocks seeing smart money buying, we screened for those seeing net institutional buying over the current quarter and net insider buying over the last six months.

Do you agree with the smart money on these names?

Analyze These Ideas (Tools Will Open In A New Window)

1. Access a thorough description of all companies mentioned
2. Compare analyst ratings for all stocks mentioned below
3. Visualize annual returns for all stocks mentioned

List sorted by potential upside implied by target price.

1. Triangle Petroleum Corporation (TPLM): Engages in the acquisition, exploration, and development of unconventional shale oil resources in the Bakken Shale and Three Forks formations in the Williston Basin of North Dakota and Montana. Of the 8 analysts that cover the stock, the lowest target price stands at $7.00, which implies an upside of 27.97% from current levels at $5.47. Net institutional purchases in the current quarter at 3.2M shares, which represents about 8.21% of the company's float of 38.99M shares. Over the last six months, insiders were net buyers of 880,000 shares, which represents about 2.26% of the company's 38.99M share float.

2. Synta Pharmaceuticals Corp. (SNTA): Focuses on the discovery, development, and commercialization of small molecule drug candidates for treating severe medical conditions, including cancer and chronic inflammatory diseases. Of the 5 analysts that cover the stock, the lowest target price stands at $4.00, which implies an upside of 17.65% from current levels at $3.40. Net institutional purchases in the current quarter at 4.3M shares, which represents about 14.37% of the company's float of 29.92M shares. Over the last six months, insiders were net buyers of 1,545,920 shares, which represents about 5.17% of the company's 29.92M share float.

3. AbitibiBowater Inc. (ABH): Produces a range of newsprint and coated and specialty papers, market pulp, and wood products worldwide. Of the 7 analysts that cover the stock, the lowest target price stands at $19.00, which implies an upside of 16.64% from current levels at $16.29. Net institutional purchases in the current quarter at 6.3M shares, which represents about 7.92% of the company's float of 79.57M shares. Over the last six months, insiders were net buyers of 3,608,951 shares, which represents about 4.54% of the company's 79.57M share float.

4. Hudson Pacific Properties, Inc. (HPP): Operates as a vertically integrated real estate company. Of the 5 analysts that cover the stock, the lowest target price stands at $15.00, which implies an upside of 15.74% from current levels at $12.96. Net institutional purchases in the current quarter at 10.9M shares, which represents about 49.39% of the company's float of 22.07M shares. Over the last six months, insiders were net buyers of 1,210,070 shares, which represents about 5.48% of the company's 22.07M share float.

5. Complete Genomics, Inc. (GNOM): Develops and commercializes a DNA sequencing platform for human genome sequencing and analysis. Of the 5 analysts that cover the stock, the lowest target price stands at $6.00, which implies an upside of 15.16% from current levels at $5.21. Net institutional purchases in the current quarter at 6.4M shares, which represents about 62.68% of the company's float of 10.21M shares. Over the last six months, insiders were net buyers of 1,650,000 shares, which represents about 16.16% of the company's 10.21M share float. 



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: ABH , GNOM , HPP , SNTA , TPLM

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