Quantitative easing policies may become more clear this month. Does that mean it’s a good time to buy?
September is historically a sleepy month for stock prices. The Dow Jones, for example has been down in September about 60% of the time since 1950. Part of the problem is seasonal – individuals can be reluctant to take on much risk after a profligate summer. However, the markets seem even more apprehensive about the month than usual this year. The recent report for July durable goods was down (a troubling sign for the economy), and the latest jobs report was lukewarm at best.
While markets were up again today on the news that US engagement in Syria may be less likely, September has been off to a slow start. We’re still seeing lingering uncertainty about the Fed, and anticipation continues to swirl around the upcoming budget debates in Congress.
Yet some analysts are projecting a more bullish outlook by the end of the month. Speculation about the next Federal Reserve Chair has lent volatility to the market for months. When President Obama finally announces his pick, investors will have a better idea of when (and how) Ben Bernanke’s quantitative easing (QE) will be taken out of the markets. Quantitative easing is a sometimes controversial tactic pursued by central banks to stimulate a lagging economy.
Generally a central bank stimulates the economy by changing the interest rates on government bonds, which makes people more willing to borrow, spend, and consume – theoretically resulting in the creation of new jobs. When interest rates are already low, a central bank can opt to buy back existing bonds or securities, adding liquidity to the market when low interest rates weren’t enough.
When the financial crisis hit, Chairman Bernanke decided initiate QE. However, the economy can become dependent on all that easy money. And uncertainty about when the cash flow ends makes you less likely to invest. But if the government continues to buy bonds for too long, it can add too much cash to the market, resulting in inflation and price increases.
So September brings many factors to consider. So far, the outlook for stock prices in October is more optimistic. The announcement of the next Federal Reserve Chair is likely to calm the markets, regardless of who it is. A winding-down of Syria fears increases the likelihood that Congress will find time to pass a budget, which would ease uncertainty further.
We decided to take a closer look at September, to see which stocks might be undervalued in the current market. We ran a screen looking at stocks being bought by institutional investors like hedge funds – that experienced significant net institutional purchases over the last quarter representing at least 5% of share float. This indicates that some fund managers expect these stocks to outperform in the future.
Next we narrowed down our list by limiting our results to those companies reporting earnings in the second half of the month, as upcoming earnings dates can increase the volume of a stock’s trading.
We were left with six stocks on our list.
Click on the interactive chart to see data over time.
Do you agree with institutional investors about these companies? Use the list below as a starting point for your own analysis.
1. CalAmp Corp. (NASDAQ:CAMP) (CAMP, Earnings, Analysts, Financials): Develops and markets wireless communications solutions that deliver data, voice, and video for critical networked communications and other applications in the United States. Market cap at $588.31M, most recent closing price at $17.22.
Net institutional purchases in the current quarter at 2.7M shares, which represents about 8.63% of the company’s float of 31.29M shares.
Top Institutional Ownership: Blackrock Fund Advisors (4.72%), The Vanguard Group (3.52%).
Earnings Date: September 23.
2. Diamond Foods, Inc. (NASDAQ:DMND) (DMND, Earnings, Analysts, Financials): Engages in processing, marketing, and distributing snack products, as well as culinary, in-shell, and ingredient nuts. Market cap at $486.78M, most recent closing price at $23.27.
Net institutional purchases in the current quarter at 1.8M shares, which represents about 9.96% of the company’s float of 18.07M shares.
Top Institutional Ownership: Litespeed Management LLC (9.83%), The Vanguard Group (5.90%).
Earnings Date: September 30.
3. FactSet Research Systems Inc. (NYSE:FDS) (FDS, Earnings, Analysts, Financials): Provides financial and economic information to investment community worldwide. Market cap at $4.64B, most recent closing price at $109.99.
Net institutional purchases in the current quarter at 2.4M shares, which represents about 5.99% of the company’s float of 40.10M shares.
Top Institutional Ownership: BAMCO Inc. (8.33%), Capitol Research Global Investors (6.33%).
Earnings Date: September 17.
4. Gencorp Inc (NYSE:GY) (GY, Earnings, Analysts, Financials): Engages in the manufacture and sale of aerospace and defense products and systems in the United States. Market cap at $910.95M, most recent closing price at $15.43.
Net institutional purchases in the current quarter at 6.6M shares, which represents about 14.39% of the company’s float of 45.88M shares.
Top Institutional Ownership: Marcato Capital Management (9.51%), Gamco (8.65%).
Earnings Date: September 30.
