Institutional ownership as a sign of quality

The Globe and Mail, Number Cruncher

By Peter Ashton

Friday, November 24, 2017

In The Globe and Mail, Peter Ashton uses Trading Central's Strategy Builder to find dividend stocks that may provide a cushion in the case of a market pullback. 

What are we looking for?

Canadian stocks that have a high percentage of institutional ownership and strong analyst ratings.

With Canadian stock markets now sitting at or near their record highs, finding stocks poised for future growth becomes a difficult task. One philosophy is to focus on stocks with a high percentage of institutional ownership. Institutional investors such as pension plans often have long-term investment horizons and are less likely to sell in the event of a market downturn. We can further refine our search for high-quality stocks by selecting only companies with buy or strong buy ratings from a consensus of research analysts.

The screen

We will be using Trading Central's Strategy Builder to search for Canadian stocks with high levels of institutional ownership, strong analyst ratings and above-average trading volume.

We begin by setting a minimum market capitalization threshold of $5-billion to focus on larger, more established companies in the Canadian market. Next, in order to select stocks that are preferred by analysts, we will filter for companies with analysts’ consensus ratings of either buy or strong buy. We will also add a filter to select only companies with at least 50-percent institutional ownership.

Finally, in order to select stocks that are poised to move, we will pick stocks whose 10-day average volume is at least 110 per cent of the 90-day average. This limits our search to stocks with above-average short-term trading interest.

What did we find?

Topping our list is media and communications firm Quebecor Inc. Quebecor has the highest institutional ownership on our list at 74.4 per cent. The company completed a two-for-one stock split on Nov. 16. This split has been accompanied by a strong rally in the stock price along with well-above-average trading volume over the past 10 days.

TransCanada Corp. has been in the news this past week with the state of Nebraska finally issuing a permit to allow the long-delayed Keystone XL pipeline to move ahead. This news has caused above-average trading in the stock with a 10-day volume of 136 per cent of the 90-day average. TransCanada also has very high institutional ownership at 66.3 per cent and an analyst consensus rating of buy.

Algonquin Power & Utilities Corp. is a diversified electric utility with assets across North America. The company recently delivered solid third-quarter results with management forecasting 10-percent annualized earnings growth through 2021. The stock has seen above-average trading volume over the past 10 days and has rallied more than 7 per cent over the same period.

The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.