Following the so-called “smart money” is often a wise strategy for retail investors. Most individual investors fail to outperform the broader market over the long-run. While most institutional investors also struggle to beat the market, their failure rate is lower. Thus, many such investors are less likely to suffer significant losses when investing in stocks. When you’re dealing with larger sums of money, capital preservation is key. Additionally, these smart money investors also have the tools and resources necessary to increase their chances of success.
By smart money investors, I mean the big players in the investing world. The list includes large financial firms, hedge funds, and ultra-wealthy individuals with deep pockets and ample research resources. These investors typically employ teams of analysts to carefully study companies’ financial reports and do their due diligence on stocks. Plus, their size and influence allow them access to company leaders and industry insiders. The average Joe can’t match all that.
Moreover, when smart money moves into a specific stock in a big way, it can create a self-fulfilling prophecy. The sheer buying power of these investors can drive share prices higher. Here are three stocks that the smart money likes right now.
Insulet (PODD)
Insulet (NASDAQ:PODD) is a company that makes insulin delivery systems. The stock is down 43% over the past year, but has been bottoming out. I expect a rebound soon, driven mostly by institutional investors. Institutional ownership of the stock is among the highest I’ve seen at nearly 85%.
Wolfe Research upgraded shares of Insulet from a peer perform rating to an outperform rating and set a $200 target price for the company in a research note on Tuesday. Additionally, Van ECK Associates Corp, Natixis Advisors, and Nisa Investment Advisors have all boosted their holdings in this stock recently.
It’s no surprise why. Insulet’s Q1 results have been healthy. Revenue from its Omnipod 5 system saw a 21% increase. Management has also increased full-year projections, now targeting $2 billion in revenue and 19% Omnipod growth at the high end of its range.
However, it’s important to acknowledge the growing number of competitors in this space. Other big players such as Tandem have their own automated systems. Insulet needs to capitalize on its early lead by quickly expanding Omnipod 5’s approved uses into the large type 2 diabetes market before other companies can gain ground. Nonetheless, the company’s growth has so far been very strong.
Analysts expect earnings per share to grow more than five-fold from 2024 to 2033 and revenue to double by 2030. This is a growth stock that’s certainly worth considering, in my view.
Fox Factory (FOXF)
Fox Factory (NASDAQ:FOXF) makes suspension components for motorcycles, automobiles, all-terrain vehicles, side-by-sides, trophy trucks, snowmobiles, and mountain bikes. Now, the company did see some challenges during Q1 2024. While their total revenue declined year-over-year, dipping more than 16.6% to $333.5 million, Fox Factory still did better than expectations on both the top- and bottom-lines. Their adjusted earnings per share, came in at 29 cents, which beat Wall Street estimates by 10 cents. Analysts expect top-line growth to remain positive, and expect a sharp earnings rebound next year.
One business segment that had issues was the company’s specialty sports group, as some stores had to adjust their inventory levels. However, Fox should see better numbers starting in the next quarter. The other operating segments (outside of specialty sports) are seeing strong growth.
For now, the company is focused on keeping costs low by streamlining operations and limiting investments. While outside factors like high interest rates present hurdles, Fox Factory is still in a good spot to navigate ups and downs in the business cycle. The stock is trading at dirt-cheap levels, and institutional investors have an 82.3% ownership of the business. I see huge upside for this name when the business cycle turns.
Conmed (CNMD)
Conmed (NYSE:CNMD) had a strong start to the new year 2024, with revenue increasing 5.9% (constant currency) to reach $312.3 million in the first quarter. While this represents a slowdown from 19.4% growth last year (which was boosted by easing supply chain issues), the company’s revenue has grown nicely over the past two years. Even more impressive, adjusted net income jumped 20.3% compared to the same period last year.
Looking ahead, analysts expect 7%-8% top-line growth per year and earnings per share to increase from $4.30 to $7.50 from 2024 to 2027. Meeting these estimates should lead to juicy upside from depressed levels right now. The stock seems very cheap at $74 per share, and I do not think it can go down much from here. Notably, CNMD stock also pays out a 1% dividend yield. Thus, it’s no surprise institutional investors hold some 85% of the stock.
Conmed hasn’t seen a sharp uptick yet in its stock price, but this is a name that could swing higher quickly if this company meets expectations this year.
On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
