Contrarian Stock Picks: Investing Like Your Feline Friends

Contrarian Stock Picks: Investing Like Your Feline Friends

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We like to believe there's a sweet science behind picking winners and losers in the stock market. After all, that is likely part of the reason you visit this website. But what if carefully selecting assets was as good as randomly throwing darts at a dartboard? 

[Related: Can A Monkey Beat A Hedge Fund? New Study Reveals Disturbing Stats]

That may very well be the case, as a new study from the British newspaper The Observer pitted the stock picking abilities of a wealth manager, a stockbroker, and a fund manager against a cat. The cat won. 

Yup. The ginger cat named Orlando "selected stocks by throwing his favourite toy mouse on a grid of numbers allocated to different companies." Meanwhile, the human traders invested a in five companies from the FTSE All-Share index at the start of the year. After every three months, they could exchange any stocks, replacing them with others from the index.

Lo and behold, the feline produced the best returns for 2012 of any of the competitors, and he graciously did not charge any service fees.

According to The Observer:

By the end of September the professionals had generated £497 of profit compared with £292 managed by Orlando. But an unexpected turnaround in the final quarter has resulted in the cat's portfolio increasing by an average of 4.2% to end the year at £5,542.60, compared with the professionals' £5,176.60.

While this is certainly alarming for anyone who relies on a professional, there are some extenuating circumstances to consider. For one, 2012 was overall a very strong year for the markets. Traditionally, hedge funds underperform in the types of environments that show robust growth because built into their portfolios are hedges against loss. Because of this an overwhelming number of funds underperformed in 2012 while the S&P 500 grew sixteen percent.

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Okay, so we know hedge funds aren't perfect, and as a group they don’t always beat the market. So why don’t we take this conclusion and turn it upside down: If hedge funds are selling a certain stock, is that a signal to buy?

If you’re a skeptic, you might view hedge fund trades as a kiss of death. To help you start your research, we collected data on about 200 stocks on the US exchanges that have seen significant institutional selling during the last few months. In addition, we collected data on insider buying, and identified nine of those stocks have been boosted by bullish insider sentiment.

Hedge funds seem to think these stocks are in trouble, but insider executives think this pessimism is misplaced. Considering the research mentioned above, whose side are you on?

1. Forest Laboratories Inc. (FRX, Earnings, Analysts, Financials): Develops, manufactures, and sells branded and generic forms of ethical drug products. Market cap at $9.8B, most recent closing price at $36.83. Net institutional sales in the current quarter at -14.3M shares, which represents about 6.15% of the company's float of 232.68M shares. Over the last six months, insiders were net buyers of 4,078,369 shares, which represents about 1.75% of the company's 232.68M share float.
 

 

2. Global Indemnity plc (GBLI, Earnings, Analysts, Financials): Provides admitted and non admitted specialty property and casualty insurance products worldwide. Market cap at $535.79M, most recent closing price at $21.27. Net institutional sales in the current quarter at -688.0K shares, which represents about 10.97% of the company's float of 6.27M shares. Over the last six months, insiders were net buyers of 64,837 shares, which represents about 1.03% of the company's 6.27M share float.
 

 

3. Opko Health, Inc. (OPK, Earnings, Analysts, Financials): Engages in the discovery, development, and commercialization of novel and proprietary technologies primarily in the United States, Chile, and Mexico. Market cap at $1.88B, most recent closing price at $6.32. Net institutional sales in the current quarter at -7.9M shares, which represents about 5.93% of the company's float of 133.33M shares. Over the last six months, insiders were net buyers of 6,485,900 shares, which represents about 4.86% of the company's 133.33M share float.
 

 

4. Resolute Energy Corporation (REN, Earnings, Analysts, Financials): Engages in the acquisition, exploration, exploitation, and development of oil and gas properties primarily in onshore properties in the United States. Market cap at $550.12M, most recent closing price at $8.88. Net institutional sales in the current quarter at -2.9M shares, which represents about 7.91% of the company's float of 36.66M shares. Over the last six months, insiders were net buyers of 1,006,418 shares, which represents about 2.75% of the company's 36.66M share float.
 

5. Scientific Games Corporation (SGMS, Earnings, Analysts, Financials): Provides gaming solutions to lottery and gaming organizations worldwide. Market cap at $780.18M, most recent closing price at $9.17. Net institutional sales in the current quarter at -6.1M shares, which represents about 15.14% of the company's float of 40.30M shares. Over the last six months, insiders were net buyers of 808,606 shares, which represents about 2.01% of the company's 40.30M share float.
 

 

6. Vistaprint N.V. (VPRT, Earnings, Analysts, Financials): Operates as an online provider of marketing products and services to micro businesses worldwide. Market cap at $1.26B, most recent closing price at $36.87. Net institutional sales in the current quarter at -4.8M shares, which represents about 21.71% of the company's float of 22.11M shares. Over the last six months, insiders were net buyers of 407,761 shares, which represents about 1.84% of the company's 22.11M share float.
 

 

7. Westport Innovations Inc. (WPRT, Earnings, Analysts, Financials): Provides alternative fuel, low-emissions technologies that enable engines to operate on fuels, such as compressed natural gas, liquefied natural gas, hydrogen, and biofuels. Market cap at $1.57B, most recent closing price at $28.43. Net institutional sales in the current quarter at -3.8M shares, which represents about 8.53% of the company's float of 44.55M shares. Over the last six months, insiders were net buyers of 500,000 shares, which represents about 1.12% of the company's 44.55M share float.
 

 

8. Zipcar, Inc. (ZIP, Earnings, Analysts, Financials): Operates a car sharing network for its members in metropolitan areas and on university campuses in the United States, Canada, and the United Kingdom. Market cap at $489.87M, most recent closing price at $12.21. Net institutional sales in the current quarter at -5.5M shares, which represents about 21.05% of the company's float of 26.13M shares. Over the last six months, insiders were net buyers of 1,000,000 shares, which represents about 3.83% of the company's 26.13M share float.
 

 

 

Written by Dan Connelly 

 

 

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One Response to “Contrarian Stock Picks: Investing Like Your Feline Friends”

  1. Interesting article, I have two cats, but I never though to inspire from them:))

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