Screening Major Institutions

 | Sep 26, 2013 | 12:00 PM EDT
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Forty-five days after each quarter, I dig through all the 13F filings of a dozen or so investment firms that I watch closely. By law, any firm that manages over $100 million in assets has to file a 13F each quarter that lists the securities held by that firm.

I came recently across a neat little report from the Value Line Investment Survey that aggregated the major purchases and sales by these firms. The list then identified the top 20 securities that were bought and sold during the second quarter by investment firms as a group.

A caveat: Value Line only included stocks that were part of its universe of stocks. But because Value Line monitors thousands of securities, that list represents over 95% of the stock market capitalization.  It's an excellent list.

According to this report, the stock with the greatest increase in buying during the quarter was ResMed (RMD), a $7.5 billion maker of medical equipment. A quick look at the company explains why. In terms of quality, it doesn't get better than ResMed.  at least from the perspective of the past.

In the past 10 years, sales have climbed to over $1.5 billion from $230 million. Profits have increased to over $300 million from $45 million. If you are running numbers in your head, you've calculated that RMD sports a net margin of nearly 20 percent. Return on equity is consistently above 15%, a return all the more impressive considering RMD has $300 million in debt against nearly $900 million in cash.

In addition to RMD, other top buys during the quarter were Liberty Global (LBTYA), General Motors (GM), and Thermo Fischer (TMO).  

Not surprisingly, a top institutional sell during the quarter was Tesla Motors (TSLA). Given the rapid run up from $26 a share to $185, it's not surprising that shares would be disposed. With a current market of $22 billion, Tesla market value is nearly one-half of GM. There's clearly a lot of hype built into Tesla and I suspect over the coming months, firms sitting on juicy gains will continue to get out. 

Dollar General (DG) was another name that saw some selling in the second quarter. DG remains an excellent business. But DG, along with the other dollar discount stores, was in the sweet during the past five years as the economic slump meant more customers. At $57 a share though, shares are still trading near a 52-week high. Other names seeing a spike in selling include General Growth Properties (GGP) and Twenty-First Century Fox (FOXA). 

A contrarian point of view could always take an interest in names that are being sold and be skeptical of widely-bought stocks. In this case, there's no indication that names like GM and RMD are over-hyped stocks. RMD is simply a high quality business while GM, in my opinion, is an undervalued automaker. Tesla, despite the fact that they actually do make a good car, is being valued with an enormous degree of optimism.

In the end, this list is basically another type of stock screen. I like stock screens but use them for what they are -- a source of ideas to further pursue.

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