Monitoring Institutional Buying and More Tips
Several weeks ago, I shared what has become a very popular set of PowerTrend Bulletin articles with my college and graduate students at New Jersey City University, including those that participate in the Student Investment Management (SIM) Group that I have the good fortune of advising. Students in the SIM Group run an active portfolio of several hundred thousand dollars, and they are responsible for choosing and monitoring the stocks in the portfolio. There is real money on the line and the students take it seriously, so seriously in fact that we are organizing a stock pitch competition that will bring together similar groups from various universities across New York, New Jersey, Pennsylvania and Connecticut on April 2. As the date approaches, I will share more details with you.
Getting back to my main point, what was that set of PowerTrend Bulletin articles my students found so helpful as they rolled up their sleeves, read up on their companies and ran through their valuation metrics? “The 10 Questions You Have to Answer Before You Buy Any Stock,” of course. If you missed that series, you can find all six parts of it here.
Of course, once you’ve started a holding in a particular stock, there is more work to be done. That includes reading press releases and articles for the company in which you own shares and, in a perfect world, its customers, suppliers and competitors. Triangulating that information really helps you get a bead on what’s going on. For example, one of the companies that shareholders to my Growth & Dividend Report newsletter have been advised to own is Skyworks Solutions (SWKS), an RF semiconductor company that, in my view, is well positioned to see its business grow as mobile connectivity moves past “just” smartphones to the Connected Car, Connected Home, eHealth and the intersection of the industrial economy with technology, better known as the Internet of Things. Regular readers will be well aware how Skyworks fits into my Always On, Always Connected PowerTrend.
Keeping tabs on Skyworks means being in touch with the tone of the smartphone market, and that means monitoring Apple (AAPL), Samsung, HTC, LG, Huawei, Lenovo and other device manufacturers. It also means watching competitors such as Qorvo (QRVO), Avago Technologies (AVGO), Broadcom (BRCM) and others, as well as key suppliers, such as Tower Semiconductor (TSEM). As you can imagine, there is quite a bit of legwork involved, but, in my experience, blindly buying a company without understanding the business and the levers that move it often leads to problems.
As you look to understand the business, there are a variety of free resources at your disposal that range from the Investor Relations section of a company’s website to its filings with the Securities Exchange Commission (SEC). If you looked up a company you were considering at the SEC’s website (http://www.Sec.Gov), you’d find a number of filings, but the ones to watch tend to be the 10-K, 10-Q, 8-K, Form 4 and the 13F filings. The 10-K is the annual update of the company’s business, complete with management commentary and financial statements. The 10-Q is a similar filing that focuses on the quarterly and financial performance of the business, while 8-K filings tend to reflect press releases that are usually found on the company’s website.
That leaves the Form 4 and the 13F filings. The Form 4 filings are great to examine, because they show insider buying and selling activity, while 13F filings show changes in large institutional ownership positions. For example, in a recent 13F filing for PayPal (PYPL), we learned that activist investor Carl Icahn swapped all of his 42.6 million shares of eBay (EBAY) for 42.6 million shares of PayPal during the September 2015 quarter. That’s a rather significant move that can be read as Icahn seeing PayPal as a far better horse to ride than eBay. Given my Cashless Consumption PowerTrend, I’m inclined to agree. Other 13F filings showed investment advisory firm Baupost Group began a new position in PayPal with 10.9 million shares during the September quarter, while Conatus Capital did the same with a position of 3.9 million PayPal shares. While insider buying and funds adding shares of a particular company are not reasons to buy a stock in and of themselves, when viewed in conjunction with improving fundamentals and an attractive valuation on the shares, they can be rather confirming data points.
In case you missed it, I encourage you to read my e-letter column from last week about the rise of the “Internet of Things” and the changes it will bring to the stock market. I also invite you to comment in the space provided below my Eagle Daily Investor commentary.
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