Investing 101: Hedge Funds Love These High-Volume Stocks Reaching New Highs
When a stock price rallies, investors may get drawn in without taking a good look at the rally's underlying causes. One way to investigate if the price trend is legitimate is to check the stock's trading volume.
Trading volume is the number of shares or contracts that have exchanged hands in a given period, usually over a day's trading. When more activity surrounds a stock, it means more people are essentially voting on the stock's value.
When a large trading volume forms a trend, meaning if it starts to move price upwards or downwards, the trend is considered stronger and more credible than if only a few investors (weak trading volumes) are determining the change.
Other bullish trends
We decided to screen a universe of companies experiencing higher than normal trading volumes with those that have are trading at a 52-week high. A stock approaching a 52-week high presents an interesting opportunity because it's just when the stock starts gaining traction that other investors take notice.
Additionally, we screened for companies with net positive institutional buying in the current quarter. Institutions, like hedge funds, tend to have more access to market research than the average investor -- one of the reasons they are often refereed to as "smart money" investors. Therefore, if "smart money" expresses strong interest in a company, investors can assume they have good reason for doing so.
Business section: Investing ideas
As a final note on high volume trading with momentum stocks: If prices are moving upwards, and volume is increasing simultaneously, it indicates investors feel the stock has more to price in. When a stock is in an uptrend but trading volume is declining, it's a sign the trend is losing its momentum.
For that reason, in creating the list below we started with companies recently experiencing a daily trading volume more than 2 times the average daily trading volume over the last two months.
The smart money thinks these momentum stocks have more value to cash in -- do you agree? (Click here to access free, interactive tools to analyze these ideas.)
1. Independent Bank (NAS: INDB) : Operates as the bank holding company for Rockland Trust Company that provides commercial and retail banking, and wealth management services in Massachusetts. Today's trading volume is equivalent to 3.22 days of average trading volume, and the stock is 1.87% away from its 52-week high. Net institutional purchases in the current quarter at 722.6K shares, which represents about 3.54% of the company's float of 20.42M shares.
2. Douglas Emmett (NYS: DEI) : Operates office and multifamily properties in California and Hawaii. Today's trading volume is equivalent to 2.9 days of average trading volume, and the stock is 1.94% away from its 52-week high. Net institutional purchases in the current quarter at 9.3M shares, which represents about 7.87% of the company's float of 118.19M shares.
3. Liberty Property Trust (NYS: LRY) : Is a publicly owned real estate investment holding trust. Through its subsidiary, it provides leasing, property management, development, acquisition, and other tenant-related services for a portfolio of industrial and office properties. Today's trading volume is equivalent to 2.75 days of average trading volume, and the stock is 4.70% away from its 52-week high. Net institutional purchases in the current quarter at 7.6M shares, which represents about 6.6% of the company's float of 115.21M shares.
4. Idenix Pharmaceuticals (NAS: IDIX) : Engages in the discovery and development of drugs for the treatment of human viral and other infectious diseases in the United States and Europe. Today's trading volume is equivalent to 2.12 days of average trading volume, and the stock is 8.59% away from its 52-week high. Net institutional purchases in the current quarter at 2.7M shares, which represents about 4.25% of the company's float of 63.49M 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.
List compiled by Eben Esterhuizen, CFA. Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above.
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