Following the crowd isn't always a terrible thing. Despite what your kindergarten teacher may have insisted, there's safety in numbers. In investing, there's something to be said for watching institutional ownership and keeping in step with the major players in the market. Financial institutions like pension funds, life insurance companies, and college endowments have predetermined levels of risk tolerance. What's more, the people picking stocks for these institutions are well researched and have access to an array of information that would be difficult for the retail investor to find. In short, they know what they're doing. This doesn't necessarily mean that it's wise, but they have very clear reasons for what they do.
So, with that in mind, here are five stocks that are clearly appealing to the big players on the street but still have a price tag that could appeal to the smaller investor. All of these companies cost less than $10 per share, have relatively high levels of institutional ownership, and have been bought by those institutions at a much higher rate in the last three months.
Lions Gate Entertainment Corp. (LGF)
While some may have trouble stomaching the idea that the distributor of the Larry the Cable Guy movie might be a worthy investment, it's clear that major financial institutions see something engaging in this Canadian company. Institutional ownership is over 80 percent and has risen significantly in the last three months.
Power-One, Inc. (PWER)
Power-One is a manufacturer of inverters for the renewable energy industry. Incorporated in 1973, Power-One is a global company that's based out of Camarillo, CA. Power-One has a number of appealing metrics to its stock, including a low P/E ratio, PEG, and P/S ratio. This is due, in part, to the way the stock has plummeted over the last year. It's down over 60 percent since February 3 of last year, but this appears to have been seen as a buying opportunity for financial institutions as institutional ownership is over 90 percent and has been on the rise in the last three months.
Lexicon Pharmaceuticals, Inc. (LXRX)
Pharmaceutical companies have a tendency to live or die with the outcomes of clinical trials, making many of them very volatile. Lexicon, though, has drawn the attention of major financial institutions. Particularly in the last three months, big-time buyers have been snapping up shares of Lexicon at a fast rate.
Applied Micro Circuits Corporation (AMCC)
Applied Micro Circuits is a fabless semiconductor company which designs and develops high-performance, low power integrated circuits. Based out of Sunnyvale, CA, Applied Micro Circuits was founded in 1979 and shows the potential for serious EPS growth in this year and the next. That could be what has attracted institutions to the company, which own a significant portion of Applied Micro Circuits' shares with increased buying coming in the last three months.
ModusLink Global Solutions, Inc. (MLNK)
ModusLink, though various wholly owned subsidiaries, works in supply chain management solutions. Incorporated in 1986, ModusLink has its corporate headquarters in Waltham, MA. The company has seen a jump in institutional buying over the last three months, pushing its total institutional ownership over 60 percent while the share price remains under $6.
Institutional ownership is no guarantee that a stock is safe. One needs only think back to 2007 to remember the last time that the so-called experts investing big money completely missed the ball. However, companies that have strong numbers in regards to institutional ownership have clearly at least demonstrated enough potential to impress professional stock pickers.
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