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Mutual Fund Specials Show What The Pros Are Doing

Last In A Series A stock can have great fundamentals and a solid chart, but if big investors aren't buying it, it's not going to get very far.

To see what the big guns are doing, read IBD's Mutual Fund monthly and quarterly special sections. These are typically published during the first week of each month.

Institutional buying is a key part of CAN SLIM investing. Mutual funds and other professionals dominate the trading on the major stock exchanges. Armed with millions of dollars to invest, these market players create the huge run-ups in stocks that can last weeks, months or longer.

Therefore, pay attention to what stocks they're buying for clues on potential future winners. The information in the special sections may be dated but stay relevant for months.

At the same time, watch out for stocks they are unloading. These can come crashing down, especially after a long advance.

The Mutual Fund monthly and quarterly special sections provide tables of stocks that the top-performing mutual funds were buying and selling in recent months. The reports detail how many top funds are buying and the total dollar amounts that they've put to work.

Stocks being gobbled up can make good watch-list candidates. But also look to see for any sector rotation going on.

In the third quarter of 2011, top funds bought gold stocks such as Randgold Resources (NASDAQ:GOLD - News), Eldorado Gold (NYSE:EGO - News) and Newmont Mining (NYSE:NEM - News). These stocks staged gains from breakouts as gold prices surged above $1,900 an ounce.

More recently, the Feb. 3 special section pointed out that mutual fund managers were busy snapping up stocks from an array of industry groups.

One top purchase by top funds was TransDigm (NYSE:TDG - News). Twelve funds invested a total of $16 million in the stock. TransDigm makes pumps, valves, batteries and a variety of other equipment for commercial and military aircraft.

The stock blew past a 99.53 buy point from a cup-with-handle base Jan. 23. Volume was more than double its daily average that day. It has gained 17%. Great stocks tend to offer multiple entry points.