The terrific bull run of the past year hit my Q1 target of
S&P 1850 and has stalled below 1900. I still think we are
headed to my next target of S&P 2000 by year end, but the path
will not be a straight line and, more importantly, not all boats
will rise with the tide.
Many stocks will be mercilessly shorted at these valuations, while
select industries and companies will shine bright as institutional
investors - those with at least $100 million in assets under
management (AUM) - continue to put money to work in their best
These big money players are often called "the whales" of the
market. Below are 5 currents to follow them in -- plus an inside
peak at a powerful "whale" strategy I've used for over a year now
to more than double the return of the S&P 500.
1) In a Market of Stocks, Winning = Following the Big
What drives stocks higher? Earnings growth. Investors buy companies
or shares to capture a future stream of growing cash flows at some
discount today. Earnings matter as the primary motivation, but
really it's the
of a stock that is required to move its price higher as demand
And who does the kind of buying where demand outstrips supply?
Institutions like mutual funds, pension funds, insurance companies,
endowments, hedge funds, private equity and sovereign wealth funds.
All these bigger players are also "fed" money by smaller ones like
banks, brokerage and independent wealth managers, and family
When you pick a good stock, you are rewarded when what you saw as a
growth or value opportunity is slowly (or suddenly) recognized by
these "whales" of the investing ocean.
More . . .
9 "Whale Stocks" to Buy Today
Big in-the-know funds and pension plans try hard to keep others
from spotting their key moves too soon. They need time to go all
in, drive up the prices, and make big profits.
Before now, you could only catch their moves early if you had the
time and expertise to comb through obscure SEC filings. Today, a
Zacks strategy brings the best of them to you at "first sniff" so
you can enjoy the full profit ride. During 2013, this approach more
than doubled the S&P 500 with a stellar overall gain of +66.4%.
See its 9 stocks right now >>
2) Go Where No One Has Gone Before
As the whales search for stocks they want to gobble up, they like
to do it under the radar. After all, they are spending a lot of
time and money researching companies with the best prospects.
So when they decide to take a significant position of 1-20% in a
name, they want time to buy their shares before others notice the
opportunity they found. And this is especially true with one of
their favorite targets: the growing small or mid-cap company.
This is where the earnings growth is to be found. And it's also
where the undiscovered opportunities often lie. But as the whales
seek to accumulate 500,000, 1 million shares, or sometimes much
more; they have to do it slowly over time so they don't attract
I have a way to track some of the best investment opportunities
while they are still under accumulation. I'll share it with you in
a moment after we cover the other "currents."
3) They Have to Buy, and They Don't Have to Sell
One thing you have to realize about the whales is that they are
continuously given money that is earmarked for one thing: buying
stocks. In a sense, "they have to buy." It is their job. This is
why the bull market is so amazingly strong in the past few years
after roaring back from the 2008 meltdown.
Another "secret of Wall Street" is that "they don't have to sell."
Often it's not the portfolio manager's money and while year-to-year
returns matter to many investors, a lot of the money in their hands
has a longer-term focus on finding extraordinary opportunities.
Since I've been running a portfolio for the past year that tracks
institutional buys and sells every day, I've come across some
interesting whales with deep focus, lots of cash, and long time
Of course I see BlackRock and Fidelity just about every day in my
screening. But what is often more interesting and rewarding is the
names I see that the average investor probably won't recognize: TPG
Capital, Renaissance Technologies, or Baker Brothers Advisors, who
specialize in biotech with Tisch family money.
4) They Do Deep Homework and Hang On
Since lots of whales do their own research, they get to know
companies inside and out. After a starter position of 1-2% of a
company they really like, they'll make another trip to visit with
the CEO, walk the facilities, and talk to suppliers and customers.
Then they plunk down another 1-2%, what we call the "follow-on"
investment. When they break above the 5% mark of ownership in a
company, a special SEC document must be filed and that information
is made publicly available. I pay close attention every day to
those SEC filings and a few others.
And if you think about it, you can see why the whales are true
investors and not "swing traders" or even "position traders" with
time horizons measured in months. They take significant stakes in
companies at early stages because they know that small and mid-cap
enterprises are the ones with the biggest growth potential, where
they can ride the opportunity to a double or triple in value.
We just want to take a piece of that growth trajectory. And we make
sure our timing is sound with the Zacks Rank on our side.
Whale-sized interest plus earnings momentum is a big win-win.
5) The SEC Data Mountain and Its Secret Money
of SEC institutional filings published every month. There is no
humanly way to sort through all the 13F, 13D, and 13G filings and
find whales to follow. If you took the time to scan over a few
forms, your eyes would soon start to glaze over. I think the SEC
purposely makes these forms hard to interpret, even cryptic.
The solution is having an automated screen that can receive all the
filings from the SEC and then filter and sort all the data into the
essentials we want to see: the who, what, when, and how much of
every big money acquisition or sale.
We have such a screen and I run it every day, looking to see what
the big money is up to. And we also built our screen to match
significant buying or selling against the Zacks Rank. This has
given us nice winners in the past year like Zillow (Z), Michael
Kors (KORS), Triangle Petroleum (TPLM), Valeant Pharmaceuticals
(VRX), Synaptics (SYNA), Pharmacyclics (PCYC) and Endocyte (ECYT),
a recent grand-slam of 128% in only 5 weeks.
Who's Buying Your Stocks?
But our screen doesn't just spit out stock picks for us. We still
have to do our homework once we have some names. I always want to
know who the whale is and what he or she is up to. Is it a big-name
activist investor like Carl Icahn or Bill Ackman - what are they
really after and do we want to be a part of it?
And I also like to know what the size (AUM), overall goals and
investing history is of the whale. Many times I find big "under the
radar" private equity players like TPG with excellent research
processes and results. Other times I find the smaller institutions
like GTCR or Baker Brothers with unique expertise, focus and
What's always rewarding is when I start to see more than one whale
coming to nibble on a stock. Then I know good things are going to
happen. In fact, some little whales specialize in following the
giants of the market ocean.
Add it all up, and combining our earnings momentum model with
"whale watching" is a killer deal.
A Market-Doubling Approach
Of course, you can track those whale investors from their earliest
filings if you have the time and resources. If not, you can turn to
Zacks Follow the Money Trader.
This strategy monitors a vast, ever-changing database to detect the
best trades before funds and plans fully build their positions and
before other institutions join in and drive up the prices. Then we
filter down those moves even further through our proprietary
indicators. Right now, only 9 stocks make the grade as
That is how we more than doubled the robust S&P 500 for an
overall 2013 gain of +66.4%. I invite you to see our real-time buys
and sells along with those of all other Zacks services for only $1.
In fact, just today I added a Zacks Rank #1 small cap that is
poised to turn all the biopharmaceutical bubble talk into a golden
opportunity. So this is a particularly good time to look into this
Get details on
Follow the Money Trader
Kevin, a Senior Stock Strategist at Zacks, is a recognized
authority in global markets and noted for predicting and tracking
the movement of smart money. He provides commentary and
recommendations for the
Zacks Follow the Money Trader.
To read this article on Zacks.com click here.