Hedge Funds Are Buying 4 Stocks More Profitable Than Industry Average

Hedge Funds Are Buying 4 Stocks More Profitable Than Industry Average

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Looking to follow the trading decisions of hedge fund managers? We created a list with that in mind.

We created a universe of stocks with bullish sentiment from institutional investors, with significant net institutional purchases over the last quarter representing at least 5% of share float. This indicates that institutional investors such as hedge fund managers and mutual fund managers ("Smart money") expect these names to outperform into the future.

Next, we screened for names more profitable than the industry average. To be specific, we judged profitability on the basis of three trailing twelve month (TTM) margins.

TTM Margins:
TTM Gross Margin- This measures the percent change in trailing 12 month revenue and trailing 12 month cost. It is the percent of revenue left after paying expenses.
TTM Operating Margin- This is more of a focus on production expenses. In its simplest form, it is the revenue left over after paying variable costs associated with the production of a good.
TTM Pretax Margin- This is the company’s earnings before taxes incorporating all expenses.

Firms with higher margins than their industry peers indicate they are operating more efficiently.

Business Section: Investing Ideas

Below are four stocks that are more profitable than the industry average seeing significant purchases from "smart money" investors. Do you think they can keep it up?

Use the Compar-O-Matic to see the one-year returns for the companies below. Press “play” to see how the returns have varied over the last two years.

1. DineEquity, Inc. (DIN, Earnings, Analysts, Financials): Develops, franchises, and operates full-service restaurant chains in the United States and internationally. Market cap at $1.37B, most recent closing price at $71.0.

Net institutional purchases in the current quarter at 2.8M shares, which represents about 20.5% of the company's float of 13.66M shares.

TTM gross margin at 52.56% vs. industry average at 36.7%. TTM operating margin at 27.94% vs. industry average at 19.05%. TTM pretax margin at 22.94% vs. industry average at 15.83%.

2. Lululemon Athletica Inc. (LULU, Earnings, Analysts, Financials): Engages in the design, manufacture, and distribution of athletic apparel and accessories for women, men, and female youth primarily in Canada, the United States, and Australia. Market cap at $11.72B, most recent closing price at $81.05.

Net institutional purchases in the current quarter at 8.7M shares, which represents about 6.5% of the company's float of 133.75M shares.

TTM gross margin at 58.8% vs. industry average at 53.57%. TTM operating margin at 27.47% vs. industry average at 15.96%. TTM pretax margin at 27.83% vs. industry average at 14.9%.

3. National Retail Properties, Inc. (NNN, Earnings, Analysts, Financials): A publicly owned equity real estate investment trust. The firm acquires, owns, manages, and develops retail properties in the United States. Market cap at $4.96B, most recent closing price at $41.89.

Net institutional purchases in the current quarter at 13.3M shares, which represents about 11.38% of the company's float of 116.89M shares.

TTM gross margin at 58.4% vs. industry average at 39.68%. TTM operating margin at 58.4% vs. industry average at 36.99%. TTM pretax margin at 34.86% vs. industry average at 18.04%.

4. Viewpoint Financial Group (VPFG, Earnings, Analysts, Financials): Operates as the holding company for ViewPoint Bank, which provides financial services for consumers and businesses. Market cap at $777.43M, most recent closing price at $19.46.

Net institutional purchases in the current quarter at 2.1M shares, which represents about 6.16% of the company's float of 34.11M shares.

TTM gross margin at 85.83% vs. industry average at 62.51%. TTM operating margin at 48.08% vs. industry average at 33.68%. TTM pretax margin at 32.82% vs. industry average at 16.44%.

 

 

Analyze These Ideas: Getting Started

 

(List compiled by Rebecca Lipman)

 

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