Sophisticated Investors Think These 10 Stocks Will Outperform the Downturn

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It's another brutal day in the stock market, with the Dow Jones index down more than 200 points by mid-day. Even though there have been a few gains of 200+ points over the last two weeks, the short- to medium-term trend remains on the downside.

Of course, as stocks continue to fall, they will become cheaper, and long-term investors might view the current market turmoil as a great time to do some bargain hunting.

Short of a crystal ball, there's no surefire way to predict which stocks will outperform the current downturn. But taking a look at the sentiment of key investor groups can offer some clues.

We identified stocks that have seen significant short covering over the last month. Short-sellers turn a profit by selling a security high in order to buy it back low at a later date. Usually, when traders cover, or close, an open short, it means they expect that security to rise.

So a decrease in shares shorted means they think there's more upside than downside to a stock.

Short-sellers tend to be more sophisticated than your average investor -- because there's no ceiling to how high a stock may rise, going short on a position means infinite potential for downside. So it's not a bad idea to pay attention to their trades.

To further refine our search, we focused on institutional transactions (i.e., big money managers like hedge funds and mutual funds), and identified the companies that have seen significant buying during the current quarter.

Sophisticated investors, i.e., hedge funds and short-sellers, think there's upside to these companies -- what do you think? (Click here to access free, interactive tools to analyze these ideas.)

1. ZAGG (NAS: ZAGG) : Designs, manufactures, and distributes protective coverings, audio accessories, and power solutions for consumer electronic and hand-held devices, under the invisibleSHIELD, ZAGGaudio, and ZAGGskins brand names, primarily in the United States and Europe. During the current quarter, institutional investors have been net buyers of 8.0M shares, which represents about 44.17% of the company's float of 18.11M shares. Shares shorted have decreased from 9.98M to 9.61M over the last month, a decrease which represents about 2.04% of the company's float of 18.11M shares.

2. Primo Water (NAS: PRMW) : Provides multi-gallon purified bottled water, self-serve filtered drinking water, and water dispensers in the United States and Canada. During the current quarter, institutional investors have been net buyers of 8.5M shares, which represents about 44.% of the company's float of 19.32M shares. Shares shorted have decreased from 1.70M to 1.13M over the last month, a decrease which represents about 2.95% of the company's float of 19.32M shares.

3. Resolute Energy (NYS: REN) : Engages in the acquisition, exploration, exploitation, and development of oil and gas properties primarily in onshore properties in the United States. During the current quarter, institutional investors have been net buyers of 10.4M shares, which represents about 37.89% of the company's float of 27.45M shares. Shares shorted have decreased from 6.05M to 5.46M over the last month, a decrease which represents about 2.15% of the company's float of 27.45M shares.

4. Sequans Communications (NAS: SQNS) : Designs, develops, and supplies 4G semiconductor solutions for wireless broadband applications. During the current quarter, institutional investors have been net buyers of 3.0M shares, which represents about 33.82% of the company's float of 8.87M shares. Shares shorted have decreased from 966.84K to 563.74K over the last month, a decrease which represents about 4.54% of the company's float of 8.87M shares.

5. Renren American Depositary (NAS: RENN) : Operates a social networking Internet platform in China. During the current quarter, institutional investors have been net buyers of 50.3M shares, which represents about 28.79% of the company's float of 174.71M shares. Shares shorted have decreased from 14.49M to 11.18M over the last month, a decrease which represents about 1.89% of the company's float of 174.71M shares.

6. ExamWorks Group (NAS: EXAM) : Provides independent medical examinations (IME), peer and bill reviews, and related services to property and casualty insurance carriers, law firms, third-party claim administrators, government agencies, and state funds in the United States, Canada, and the United Kingdom. During the current quarter, institutional investors have been net buyers of 6.7M shares, which represents about 27.52% of the company's float of 24.35M shares. Shares shorted have decreased from 5.60M to 3.97M over the last month, a decrease which represents about 6.69% of the company's float of 24.35M shares.

7. Oncothyreon (NAS: ONTY) : Focuses on the development of therapeutic products for the treatment of cancer. During the current quarter, institutional investors have been net buyers of 10.7M shares, which represents about 27.07% of the company's float of 39.52M shares. Shares shorted have decreased from 9.05M to 7.72M over the last month, a decrease which represents about 3.37% of the company's float of 39.52M shares.

8. Hertz Global Holdings (NYS: HTZ) : Engages in the car and equipment rental businesses worldwide. During the current quarter, institutional investors have been net buyers of 67.1M shares, which represents about 25.01% of the company's float of 268.34M shares. Shares shorted have decreased from 32.52M to 29.80M over the last month, a decrease which represents about 1.01% of the company's float of 268.34M shares.

9. hiSoft Technology International (NAS: HSFT) : Provides outsourced information technology (IT) and research and development services in North America, Europe, and Asia. During the current quarter, institutional investors have been net buyers of 5.1M shares, which represents about 24.16% of the company's float of 21.11M shares. Shares shorted have decreased from 4.03M to 2.22M over the last month, a decrease which represents about 8.57% of the company's float of 21.11M shares.

10. Cosan (NYS: CZZ) : Engages in the production and sale of sugar and ethanol products. During the current quarter, institutional investors have been net buyers of 5.5M shares, which represents about 23.78% of the company's float of 23.13M shares. Shares shorted have decreased from 2.51M to 1.95M over the last month, a decrease which represents about 2.42% of the company's float of 23.13M shares

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


Kapitall's Eben Esterhuizen does not own any of the shares mentioned above. Institutional data sourced from Fidelity, all other data sourced from Finviz.

At the time this article was published The Motley Fool owns shares of Hertz Global Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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