Rebound Candidates: Stocks Near Lows with Short Covering and Institutional Buying
(Written by Alexander Crawford. Institutional data sourced from Fidelity, short data sourced from Yahoo! Finance.)
Many investors shy away from stocks that have recently underperformed the market, but a closer look may show that some underperformers could be ripe for a rebound. After all, heavy selling makes stock prices more attractive.
The catch in finding these rebound candidates is picking which stocks have legs to stand on. Luckily, we can find guidance in several “big money” statistics.
Short Sellers and Institutions
A look at the buying trends of institutional investors and the activity of short sellers are two great starting points. Institutional investors like hedge fund managers and mutual fund managers have a lot of experience in choosing investments, and they have access to the most sophisticated research. If they’re buying a stock, it’s a signal to take a second look.
As for short sellers, they are also considered very knowledgeable due to the stringent requirements and background checks they are held to (this is because short selling involves large amounts of borrowing).
To demonstrate these ideas, we ran a screen on stocks trading near their 52-week lows for those seeing bullish trends from both short sellers and institutional investors – decreases in shares shorted m/m and significant net institutional purchases over the current quarter.
Do you think these stocks may soon rebound?
Use this list as a starting point for your own analysis.
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List sorted alphabetically.
1. Sangamo Biosciences Inc. (SGMO): Engages in the research, development, and commercialization of zinc finger DNA-binding proteins (ZFPs) for gene regulation and gene modification in the United States. Net institutional purchases in the current quarter at 4.9M shares, which represents about 9.84% of the company's float of 49.81M shares. Shares shorted have decreased from 8.42M to 6.57M over the last month, a decrease that represents about 3.71% of the company's float of 49.81M shares.
2. Digital River Inc. (DRIV): Provides outsourced e-commerce solutions worldwide. Net institutional purchases in the current quarter at 3.3M shares, which represents about 9.16% of the company's float of 36.01M shares. Shares shorted have decreased from 4.90M to 4.16M over the last month, a decrease that represents about 2.05% of the company's float of 36.01M shares.
3. Central European Distribution Corp. (CEDC): Produces, imports, and distributes alcoholic beverages in Poland, Hungary, and the Russian Federation. Net institutional purchases in the current quarter at 5.1M shares, which represents about 8.25% of the company's float of 61.85M shares. Shares shorted have decreased from 10.50M to 9.81M over the last month, a decrease that represents about 1.12% of the company's float of 61.85M shares.