What does heavy institutional ownership tell us about a stock? It signifies that big investors, including mutual funds, pension funds, hedge funds, and private equity firms with tons of resources and money at their disposal, are interested in owning a particular name.
While high levels of institutional ownership in an individual stock doesn’t necessarily mean that its price is heading higher, it can be a useful gauge of interest in a particular name you are considering for the long term. After all, institutional buyers are ultimately the driving force behind supply and demand in the market.
One of the most common ways to determine whether or not a stock has high institutional ownership is to check the institutional ownership percentage, which is the percentage of outstanding shares that are owned by financial institutions.
Several institutional investor favorite stocks could be smart buys at this time, which is why we’ve provided a brief overview of three of them below.
1. Snowflake
First up is Snowflake Inc (NYSE:SNOW), a cloud software company that has seen a 133% increase in institutional ownership over the last 3 months, according to Finviz.
The company’s platform enables customers to consolidate data into a single source to drive business insights, build data-driven applications, and share data. It’s a great way to play the digital transformation trend since there are so many enterprises interested in moving their data into the cloud.
The company currently has over 4,500 customers including nearly 30% of the Fortune 500 and could be in for massive growth over the next decade given its competitive advantages.
One of the big things that sets Snowflake apart is that it is one of the only companies that can collect data from multiple data lakes, interpret that data, and display it in ways that are compatible with data analyzers.
Most databases today were not intended for cloud-based applications, which is why Snowflake’s Enterprise Data Warehouse, that allows customers to take advantage of data using public infrastructure, is so intriguing.
The company started off 2021 well with a 110% year-over-year increase in Q1 revenue to $229 million and a net revenue retention rate of 168%. With over 60% of outstanding shares of this company owned by institutions, it’s clear that “smart money” sees something special in this cloud software company.
2. Open Lending Corp
This is a provider of lending enablement and risk analytics to credit unions, regional banks, and original equipment manufacturers that is heavily owned by institutional investors. With 83% of shares held by institutions and healthy buying from large investors over the last 3 months, Open Lending Corp (NASDAQ:LPRO) could be in for a very strong 2021.
The company specializes in risk-based pricing and modeling and provides automated decision technology for automotive lenders all over the United States.
We know how important it is for financial institutions to accurately assess risk, and a company like Open Lending Corp that uses proprietary technology and advanced analytics to do so is certainly intriguing.
Open Lending Corp reported a 152% year-over-year increase in Q1 total revenue to $44 million along with a 217% increase in Q1 Adjusted EBITDA.
The company facilitated 33,318 loans in the quarter versus 28,024 certified loans in Q1 2020, which tells us that auto loan activity is picking up again following the pandemic and that more financial institutions are looking to Open Lending for risk analytics solutions.
The stock has rallied over 18% year-to-date and is certainly an institutional investor favorite worth monitoring going forward.
3. Devon Energy Corp
With over 85% of outstanding shares held by institutions, it’s clear that Devon Energy Corporation (NYSE:DVN) is viewed as a quality name by some of the biggest buyers in the world.
It’s one of the largest independent oil and gas exploration and production companies in the United States and is a great option for investors that are looking to add exposure to the energy sector at this time.
The company is a member of the S&P 500 and also pays out a 1.58% dividend yield, both additional reasons to consider adding shares.
When it comes to buying these types of businesses, it’s all about finding companies with productive portfolios of top-tier assets. Devon Energy fits the bill, as the company’s onshore operations in the U.S. and Canada are located in shale-rich basins such as The Delaware Basin.
The company also recently acquired WPX Energy (NYSE:WPX) which expands the company’s acreage and should lead to more cash returned to shareholders in the long term.
The bottom line here is that this institutional investor favorite is a great addition for investors that are bullish on the price of oil.