George Leong: Apple Inc. (NASDAQ:AAPL) is maintaining its position as the top seller of smartphones in the U.S., but in the more important global market, Apple is trailing behind its competitors. Unless Apple gains traction in China and the emerging markets, the stock is going nowhere—and that is exactly what institutional money is saying. In the last six months, institutions sold a net 29.14 million shares of Apple, cutting institutional ownership by 5.5%, according to Thomson Financial. The takeaway point in this scenario? When institutions sell, you need to take note and follow the pro money.
Simply put, by looking at where the institutional money is flowing, you can get a better sense of the market. Institutional investors are the money guys who have better access to important information and know when it’s time to jump ship. When a top-ranked analyst says jump, it’s usually wise to jump.
Take a look at the high momentum Internet services stocks. Institutional ownership is declining here, and I’m not surprised, given the massive run-up in prices this year.
Netflix, Inc. (NASDAQ:NFLX) has been the current target of heavy selling by institutions, as the share price surged above $300.00 and the valuation got out of whack at 86 times (X) its estimated 2014 earnings per share (EPS) and a massive price-to-earnings growth ratio at 8.62. Talk about overvalued! Institutions realize this, and over the past six months, 16.13 million shares were dumped, representing a decline of 4.5% in institutional ownership, according to data from Thomson Financial.
Even insiders at Netflix are selling, with 1.06 million shares sold via 26 transactions. On November 4, Neil Hunt, Netflix’s chief product officer, exercised an option to buy 5,000 shares at $54.50 per share and immediately sold at $330.95 per share.
Chart courtesy of www.StockCharts.com
Online deal provider Groupon, Inc. (NASDAQ:GRPN) also saw heavy selling by institutions after its run-up, with 29.77 million shares sold, representing a 7.55% decline in institutional ownership.
While many of the Dow Jones industrials are seeing institutional selling, there are a few exceptions. These tend to be the companies that are defensive and could handle some stalling in the economy.