One never knows precisely what motivates the institutions to buy. And certainly, institutions can, and too often are wrong in their purchases. A case that comes to mind is the secondary offer that a telecom company (UTSI ) did in Jan 2004, and Bank of America purchased several million shares @39. Today its at $10.
In the case of EXM, I agree with you that the valuation is extremely compelling, and that the price is near a bottom. The fact remains that despite our own dd of this stock, the sector as a whole is currently being valued by a much larger constellation of investors at 4 x 2005 earnings.
To make money on EXM, this sector as a whole is going to have to experience a multiple expansion. (or earnings will have to continue soaring). I dont think there is any mystery that EXM will be earning >$4/share in 2005, and >$5/share in 2006. But maybe Im too close to the story, and the story has not really gotten out. There certainly has been much headlining about the IPOs in the sector, but its worth noting that almost none of the IPO related stories spoke to the earnings pototential in the sector.
There is currently a wave of concern about commodities in general that's causing a pull back. Its probably little more than that, and the money will return to the sector.
Remember the homebuilders a few years back? All the smart money said that this was a low growth industry, and refused to afford a multiple to home builders that was then not much different than the drybulkers' mutiples today.
A few years later, the stocks in that sector doubled.