One way investors can find good opportunities is to find stocks that institutional investors are buying. Institutions have to declare their stock purchases over time, from insurance companies to hedge funds, and any organization that becomes a major shareholder.
When these big players buy in, it’s a sign that they expect shares to trend higher over time. It may not happen right away, but these large buys are usually a sign of a stock with significant upside.
One recent institutional buy is Uber (UBER). Pershing Square, the fund managed by Bill Ackman, is built a large stake in the ridesharing giant, claiming that it trades at a massive discount.
Uber shares jumped on the news, but the stock is well off its 52-week highs and flat over the past year.
Uber also still trades at a discount to the S&P 500, at just 16 times earnings, thanks to a 10-fold rise in earnings growth over the past year.
Overall revenues are up 20%, and Uber carries a 10% profit margin.
Action to take: Shares still look like a value play with their current metrics. Improving profit margins could translate into further improvements for shares.
For traders, the April $80 calls, last trading for about $3.00, could see mid-double-digit returns in the weeks ahead on a continuation of the rally.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.