Buy These 3 Stocks to Trade Like an Institutional Investor
Wall Street is already off to a hot start in the New Year, with the Dow surging to new heights and tech giants like Amazon.com, Inc. (NASDAQ:AMZN) and Nvidia Corporation (NASDAQ:NVDA) picking up right where they left off. But as tempting as it might be to try to find the next hot tech stock, one of the best places to start searching for 2018’s top picks might be where the massive institutional investors put their money.
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The term “institutional investor” covers a large spectrum of companies and firms, including mutual and pension funds, endowments, private foundations, insurance companies, large investment firms, and more. These institutional investors, in many cases, have the power to move markets.
Investment institutions, which pour hundreds of millions of dollars into different stocks, often employ teams of analysts that perform expensive and highly detailed research before making large stock purchases. Once a position is taken, these institutions have the ability and resources to pump up the stock through favorable media coverage and investor conferences.
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And using Nasdaq’s Detailed Institutional Holdings page, which is based on 13F filings with the SEC as of September 2017, we can actually find out exactly what percentage of a company’s outstanding shares are held by institutions.
With that said, let’s take a look at three stocks with high institutional ownershipthat investors might want to consider in 2018.
Stocks to Trade Like an Institutional Investor: Pfizer Inc. (PFE)
Institutional owners hold 70.55% of pharmaceutical powerhouse Pfizer Inc. (NYSE:PFE) shares. There are 2,105 institutional level holders that own a total of 4.20 billion shares. BlackRock, Inc. (NYSE:BLK) is the largest single holder with 440 million shares, while Vanguard and State Street Corp own 425 million and 309 million, respectively.
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Pfizer is currently a Zacks Rank #2 (Buy) and sports an “A” grade for Growth and a “B” for Value in our Style Scores system, helping it earn an overall “A” VGM score. The biopharmaceutical company is currently trading at 13.36x earnings, which comes in below the “Large Cap Pharmaceuticals” industry average.
On top of that, Pfizer presents solid value to investors with P/B and P/S ratios that mark discounts compared to its industry’s average. Looking ahead to Pfizer’s fourth quarter, the company’s earnings are expected to surge 19.15% year-over-year, based on our current Zacks Consensus Estimates. Pfizer is set to report its Q4 results on Jan. 30.
Stocks to Trade Like an Institutional Investor: Bank of America Corp (BAC)
Shares of Bank of America Corp (NYSE:BAC) experienced a marginal dip on Wednesday after the company reported Q4 results that were subdued by a one-time, $2.9 billion charge related to the new GOP tax law. The company reported quarterly revenues that rose 2% year-over-year.
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In terms of large backers, the banking giant boasts a substantial 68.86% institutional ownership rate, with a total of 1,856 institutional holders claiming 7.18 billion shares. Warren Buffett’s Berkshire Hathaway (BRKA) is the biggest of Bank of America’s institutional holders, claiming 679 million shares. Blackrock comes in second, owning 667 million BAC shares, while Vanguard claims 663 million shares.
Bank of America is currently a Zacks Rank #1 (Strong Buy) and rocks a “B” grade for Momentum. What’s more, the bank is currently trading at 13.60x earnings, presenting a discount to its industry and the S&P 500. Also, looking ahead to 2018, Bank of America has experienced seven upward earnings estimate revisions for its upcoming full year within the last 60 days.
Stocks to Trade Like an Institutional Investor: Microsoft Corporation (MSFT)
Microsoft Corporation (NASDAQ:MSFT) is also currently a Zacks Rank #2 (Buy). Institutional investors own 74.10% the technology powerhouse’s current shares, with a total of 2,534 firms holding on to 5.72 billion MSFT shares. Vanguard, Blackrock, and Capital World Investors are currently the largest three institutional holders.
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Over the last 12 weeks, shares of Microsoft have popped 12.2% and currently rest just below their 52-week high. Microsoft also boats a current cash flow growth rate of 17.17%, which crushes its industry’s average and should help the company invest in new technologies like AI.
Based on our current Zacks Consensus Estimates, Microsoft is projected to see its current quarter earnings gain 3.61% year-over-year. The company’s quarterly revenues are projected to reach $28.35 billion, which would mark a nearly 9% surge from the year-ago period. Microsoft is set to report its fiscal year 2018 second-quarter results on Jan. 31.
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