Like retail investors, institutional investors aren’t always right. But they are often the largest owners of individual stocks—and thereby largely responsible for day-to-day market movements.
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Learning who holds the most shares in a particular company can help investors understand what dictates stock price changes. When big institutions like hedge funds, mutual funds, and ETFs are in control, their actions typically rule the day. In other cases, corporate insiders that own a majority of shares can manipulate trading activity.
Institutional investors are most commonly the largest shareholders of a given stock simply because they have the deepest pockets. They manage thousands of active and passive funds which collectively amass huge assets under management (AUM).
But when institutions have stakes in an unusually high portion of a company’s shares outstanding, it can signal that the so-called “smart money” knows something the little guy does not.
The exceptionally high institutional interest in these three names should peak investors’ interest.
Is Gentherm Stock Oversold?
Investment managers and fund managers combined own 99% of Gentherm Incorporated (NASDAQ: THRM) equity. This information can be gleaned from 13F forms that these investors must file quarterly with the SEC.
The maker of climate-controlled seats and other vehicle heating and cooling products has the attention of two firms in particular. Blackrock and Vanguard, which together manage more than $17 trillion in assets, own approximately 27% of Gentherm’s outstanding shares. The iShares Core S&P Small Cap ETF by itself has scooped up 7% of the shares, while a pair of popular Vanguard index funds together own 5%.
Among active investment managers, J.P. Morgan’s Undiscovered Managers Behavioral Value Fund is the largest Gentherm stakeholder. This unique mutual fund focuses on small cap value stocks to which the market tends to “overreact to old, negative information and underreact to new positive information”. As part of this strategy, significant insider buying or repurchases are considered responses to overreactions on fundamentally sound companies.
Gentherm fits the mold of an undervalued small cap in oversold territory. After climbing to an all-time high of $99 at the start of the year, a disproportionate selloff related to supply chain issues and broad market weakness has the stock trading around $70. With new growth opportunities in the medical industry forthcoming and a below industry average P/E ratio, look for Gentherm to heat back up.
Why Do Investment Managers Love Integer Holdings?
Integer Holdings Corporation (NYSE: ITGR) is a medical device company that specializes in portable cardiovascular and neuromodulation products. All but 0.8% of the 33 million shares outstanding belong to institutional investors.
Once again, Blackrock’s iShares and Vanguard are the largest shareholders with a combined ownership of nearly 30%. Integer Holdings is also a favorite of several actively managed small-cap value funds. The (Morningstar 5-star rated) Fuller & Thaler Behavioral Small Cap Equity Fund, which also uses a behavioral-based stock-picking approach, has it as one of its healthcare holdings. The Delaware Small Cap Value and Franklin Small Cap Value funds also call Integer one of their own.
It’s easy to see why the stock is popular among active managers. Integer has beat top and bottom line estimates in each of the last five quarters. Product demand has been strong of late after the pandemic delayed elective surgeries. Now holding a large order backlog, the company is expanding its manufacturing capacity to keep up with demand. With a forward P/E of 17x, institutions are heavily invested in Integer for good reason.
Is Bath & Body Works’ Stock Undervalued?
Bath & Body Works, Inc. (NYSE: BBWI) has a 97% institutional ownership. Investors that took a chance on the personal care and beauty products retailer at the depths of the pandemic low really cleaned up.
The stock increased more than tenfold from March 2020 to November 2021 amid crazy demand for all things hygiene. Now down 45% from its record peak, however, Bath & Body Works appears to be circling the drain—but maybe not.
Institutional shareholders have taken a bath during the current 4-month losing streak but aren’t yet ready to throw in the towel. While the company faces increased pressure from surging online competitors, a spinoff of the Victoria Secrets business has Bath & Body Works in a more flexible financial position to pursue growth in brick-and-mortar in addition to its own e-commerce channels.
As a 10% equity owner, Lone Pine Capital is still a big believer in this retail turnaround story. The Connecticut-based investment advisor has a 7% weighting in its concentrated equity strategy; only Amazon, Shopify, and Mastercard as larger positions.
Due to the recent slide, Bath & Body Works is trading at less than 10x forward earnings. This one smells like an undervalued buy opportunity.
