06-26-2018: Cambrex Corporation (CBM): Helping Pharmaceutical Corporations Get FDA Approvals

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Recommendation

Cambrex Corporation

In this article, we divert a bit from our normal format to try to answer a question about "Institutional Activity," namely how can institutions hold more than 100% of the outstanding shares of a stock? This is what is being reported for Cambrex and many other stocks. The simple answer is, "THey can't!" But there may be important implications for what that data means. (See "Institutional Activity" section for further discussion of this.

It was suggested to us that stocks showing a higher than 100% institutional ownership might reflect unloading and be a negative, but clearly this is not the case for Cambrex, as institutions are net acquirers in the last reporting period, and also Dimensional Fund Advisors is prominent among them.

This stock as a high Zenith Index indicating fundamental strength. It is favored by both Standard & Poor's and Market Grader. Market Grader implies it may have been overlooked a bit. We note it performs well with certain chart indicators such as the Aroon System in our "Wall Street Analyzer" section. It also appears to be a channeling stock currently at the lower end of its trading range. News is generally rather tepid but good on the stock. Earnings history appears stable and predictable with steady increases. Revenues are growing faster than earnings, so the earnings growth appears to be sustainable.

We were not impressed by the company's website or the CEO's attention to shareholders, mainly because we favor "Letters to Shareholders" in glitzy annual reports rather than conference calls, which is the "lazy" way of handling things used by most American corporations. Management appears to be over-compensated indicating very poor corporate governance. Despite all that, GMI Analyst rates this corporation's accounting practices very highly.

The corporation appears to have a heavy "Swedish" influences with major facilities there and a good relationship with Astra Zenica. It also has plants in parts of the U.S. that we would consider having problems with employment like Iowa and the Carolinas. We think the stock is a strong buy.



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Zenith Index

Under current market conditions, a Zenith Index Score of 1.20 or above is required for a positive rating on this factor. 1.21 -1.30 is considered acceptable, 1.30-1.40 is considered strong and
> 1.40 is considered exceptionally strong. Accounting statements in this section often contain mistakes, especially in earlier years' totals, but data is deemed sufficient for us to give a rating. More accurate financial statements follow in the next section.

Cambrex Corporation (CBM)                                 Exchange: NYSE
One Meadowlands Plaza
East Rutherford, NJ 07073        Sector: Healthcare
United States                    Industry:Biotechnology

Cambrex Corporation, a life sciences company, provides various products
and services for the development and commercialization of new and
generic therapeutics worldwide. Its products comprise active
pharmaceutical ingredients and pharmaceutical intermediates that are
used in the production of prescription and over-the-counter drug
products, as well as other fine chemicals. The company serves generic
drug companies; and companies that discover and commercialize small
molecule human therapeutics. The company sells its products directly, as
well as through independent agents. Cambrex Corporation was founded in
1981 and is headquartered in East Rutherford, New Jersey.

Last Trade:  47.20                           52-Week Range:  62.30 -  42.55
Employees: 1,228                             Avg.Volume:     320,563 Shares

Corporate Governance:
Pillar scores are Audit: 5; Board: 3; Shareholder Rights: 2; Compensation: 5.
         (A lower number means less governance risk.)

EPS:  3.18    Dividend Amount: $ 0.00          Yield:  0.00%
             Ex-Dividend Date: May 4, 2007     Payout Ratio:   0.00

Key Statistics:

    Trailing P/E:  14.87              Forward P/E (est.):  16.37
                                           Target Price:  60.75

Qrtly Stock Price Growth (yoy): -22.05%               Beta:   2.14
Qrtly S&P Index   Growth (yoy):  34.00%        Short Ratio:  10.71%
    Qrtly Revenue Growth (yoy):  12.74%         Shares Out:  32960000
   Qrtly Earnings Growth (yoy):   0.00%

          Book Value:  17.98                    Debt/Equity:   0.00%
    Price/Book Value:   2.63        Operating Profit Margin:  25.53%
         Price/Sales:   2.73                  Profit Margin:  18.68%
         Market Cap:   1,559,000,000       Return on Equity:  20.89%
    Enterprise Value:   1,370,000,000      Return on Assets:  12.79%

    Operating Cash Flow:    137,480,000
         Free Cash Flow:     32,860,000



Annual Income Statement:                      (All numbers in thousands)
  Period Ending                             12/31/2017  12/31/2016  12/31/2015

  Total Revenue                                535,006     490,338     433,931
  Cost of Revenue                              304,369     286,419     256,361
  Gross Profit                                 230,637     203,919     177,570

Operating Expenses:
  Research & Development                        16,901      14,292      12,540
  Selling, General & Administrative             70,468      59,582      57,867
  Non-Recurring Expenses                             0           0           0
  Other Operating Expenses                           0           0           0
  Total Operating Expenses                     391,738     360,293     326,768

Operating Income or Loss                       143,268     130,045     107,163

Income from Continuing Operations:
  Total Other Income/Expenses Net               -1,443      -2,506     -17,598
  Earnings Before Interest & Taxes             107,163
  Interest Expense                             141,825     127,539      89,565
  Income Before Taxes                           38,061      40,214      32,389
  Income Tax Expense                                 0           0           0
  Minority Interest                            103,764      87,325      57,176

Net Income from Continuing Op.s                      0           0           0

Non-recurring Events:
  Discontinued Operations                       -1,314      -5,647          41
  Extraordinary Items                                0           0           0
  Effect of Accounting Changes                       0           0           0
  Other Items                                        0           0           0
  Net Income                                   102,450      81,678      57,217
  Preferred Stock & Other Adjustments                0           0           0

Net Income Avail to Common Shares              102,450      81,678      57,217



Annual Cash Flow Statement:                   (All numbers in thousands)
  Period Ending                         12/31/2017    12/31/2016    12/31/2015

  Net Income                                     0             0             0

Operating Activities:
  Depreciation                              31,848        24,665        22,061
  Adjustments to Net Income                 19,948         6,684        29,978
  Changes in Accounts Recv'bls              40,651        -5,120       -14,378
  Changes in Liabilities                   -19,129        54,018        23,957
  Changes in Investories                   -13,283       -23,679       -32,721
  Changes in other Oper'g Acts             -13,470        -4,690        -1,063

Total Cash Flow f Operations               149,015       133,556        85,051

Investing Activities:
  Capital Exenditures                      -52,143       -49,714       -62,491
  Investments                                    0             0             0
  Other Cash Flows fr Investing                  0             0           -56

Total Cash Flows from Investing            -49,307       -73,976       -60,239

Financing Activities:
  Dividends Paid                                 0             0             0
  Sale of Purchase of Stock                  4,781         4,941         5,816
  Net Borrowings                                 0       -30,000       -30,000
  Other Cash Flows fr Financing                  0        -2,515           -56

Total Cash Flows from Financing              4,781       -27,574       -24,184

  Effect of Exchange Rate Chg                4,654        -1,839        -2,172

Change in Cash & Cash Equiv.               109,143        30,167        -1,544



Annual Balance Sheets:                              (All Numbers in Thousands)
  Period Ending                          12/31/2017    12/31/2016    12/31/2015
Current Assets:
  Cash & Cash Equivalents                   183,284        74,141        43,974
  Short Term Investments                          0             0             0
  Net Receivables                            96,035       117,370        98,198
  Inventory                                 138,542       123,184       109,920
  Other Current Assets                           83           125             0
  Total Current Assets                      417,944       314,820       252,092

  Long-Term Investments                           0             0             0
  Property, Plant & Equipt                  254,299       217,092       186,487
  Goodwill                                   43,626        40,323        32,063
  Intangible Assets                          13,868        14,800         6,691
  Accumulated Amortization                        0             0             0
  Other Assets                                6,694        16,995        21,019
  Deferred LT Asset Charges                   3,198        13,061        19,259

Total Assets                                740,565       611,865       505,539

Current Liabilities:
  Accounts Payable                           35,017        42,873        39,257
  Current Portion LT Debt                         0             0        30,000
  Other Current Liabilities                  20,073        26,276        33,695
  Total Current Liabilities                  55,090        69,149        102,952

  Long Term Debt                             35,017        42,873        39,257
  Other Liabilities                               0             0        30,000
  Deferred LT Liab. Charges                  20,073        26,276        33,695
  Minority Interest                         103,764        87,325        57,176
  Negative Goodwill                               0             0             0

Total Liabilities                           168,250       180,125       167,854

Stockholder Equity:
  Misc. Options, Warrants                         0             0             0
  Redeemable Preferred Stock                      0             0             0
  Preferred Stock                                 0             0             0
  Common Stock                                3,427         3,393         3,353
  Retained Earnings                         429,826       327,376       245,698
  Treasury Stock                            -54,368       -79,023       -70,196
  Capital Surplus                           165,979       153,681       131,980
  Other Stockhohlder Equity                 -42,228       -65,520       -55,449
  Total Stockholder Equity                  544,864       405,427       310,835

Net Tangible Assets                         487,370       350,304       272,081


Cambrex Corporation (CBM)                   [Indices near +3.0, near zero,
                                            or < zero bear special attention.]
P/E Ratio Tests:
P/E Ratio < 28?            1.8830          P/E Ratio > 5?             1.0000
P/E Ratio Vs Growth Rate:  0.0000          Forward P/E Ratio < 28?    1.7104
Price/Sales Ratio < 2.3?   0.8425          Inventory/Sales < 5%?      0.1931
Sales < $1 Billion?        1.8691          Operating Margin < 7.5%?   0.2938

Balance Sheet Tests:
Debt/Equity < 0.40?        1.0000          Long-Term Debt Service:    3.0000
LTD Being Reduced?         0.0000          Short-Term Debt Service:   0.0000
Current Ratio > 2?         3.0000          Working Capital >= 1.5?    0.2004
Leverage Ratio < 20%?      3.0000          Debt/Assets < 1?           3.0000
Quick Ratio > 1?           3.0000          Inventory Turnover > 1?    0.3537
Share Equity Increase:     2.6482          Market Cap.< 1.5 Billion?  0.9622
                                           Intangibles < 3% Assets?   0.3864
Income Tests:
Profit Margin < 7.5%?      2.4906          EPS Annual Growth > 10%?   0.0797
Dividend Yield > 2.0%?     0.0000          EPS 3-yr Growth > 15?      0.0838
Enterprise Value/Revenue   2.9138          EPS Growth Consistent?     2.0000
Enterprise Value/EBITDA:   3.0000          Collection < 45 days?      0.6868
EPS Qrtly Growth > 10%?    0.0000          Gross Pft/Cur. LTD > 1?    3.0000
                                           Borrowing Int. Rate < 6%?  3.0000
Stock Performance Tests:
Volatility > 25%?          1.2681          % Held by Insiders < 5%?   3.0000
Beta > 1.25?               1.7120          % Held by Institut. < 50?  0.4615
50 Da MA > 200 Da MA?     -0.2752          % Held by Institut. > 30?  3.0000
52-Wk Change vs. S&P 500: -1.7308          Short Ratio > 5?           2.1420
Price/Book Value < 3?      1.1428          Short % of Float > 20?     0.6610
Return on Assets > 17%?    0.7524          Average Volume > 100,000?  3.0000

Cash Flow Tests:
Oper. C.F. > Lever'd C.F:  3.0000          Positive Free Cash Flow?   3.0000
Positive Oper. Cash Flow?  3.0000          Price to C.F.Ratio < 14?:  1.8239
                                           Cash Flow / Assets > 10%?  2.7425

CBM    Cambrex Corporation                 Overall Zenith Index:      1.5164


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Financial Statements

CAMBREX CORP  (CBM)                         INCOME STATEMENT

Fiscal year ends in December.                        2013-12         2014-12         2015-12         2016-12         2017-12             TTM           

Revenue                                          318,176,000     374,612,992     433,326,016     490,644,000     534,456,000     570,547,008
Cost of revenue                                  215,272,000     250,815,008     256,360,992     286,419,008     304,368,992     336,480,000
Gross profit                                     102,904,000     123,798,000     176,964,992     204,224,992     230,087,008     234,067,008


Operating expenses
Research and development                          10,387,000      13,075,000      12,540,000      14,292,000      16,901,000      16,630,000
Sales, General and administrative                 47,568,000      52,489,000      57,867,000      60,422,000      70,468,000      71,932,000
Restructuring, merger and acquisition                      0               0      15,573,000       1,158,000               0               0
Other operating expenses                                   0               0     -15,573,000      -1,158,000               0               0
Total operating expenses                          57,955,000      65,564,000      70,407,000      74,714,000      87,369,000      88,562,000

Operating income                                  44,949,000      58,234,000     106,558,000     129,511,000     142,718,000     145,504,992
Other income (expense)                                58,000     -12,728,000     -16,993,000      -1,972,000        -893,000        -572,000
Income before taxes                               45,007,000      45,506,000      89,565,000     127,539,000     141,824,992     144,932,992
Provision for income taxes                        14,732,000     -12,627,000      32,389,000      40,214,000      38,061,000      38,035,000
Net income from continuing operations             30,275,000      58,133,000      57,176,000      87,325,000     103,764,000     106,898,000
Net income from discontinuing ops                 -4,360,000        -830,000          41,000      -5,647,000      -1,314,000        -255,000
Net income                                        25,915,000      57,303,000      57,217,000      81,678,000     102,450,000     106,643,000
Net income available to common shareholders       25,915,000      57,303,000      57,217,000      81,678,000     102,450,000     106,643,000

Earnings per share
Basic                                                   0.86            1.86            1.82            2.55            3.14            3.26 
Diluted                                                 0.84            1.81            1.76            2.48            3.06            3.18 

Weighted average shares outstanding
Basic                                             30,150,000      30,763,000      31,420,000      32,086,000      32,662,000      32,772,000
Diluted                                           30,901,000      31,643,000      32,555,000      32,969,000      33,486,000      33,550,000

____________________________________________________________________________________________________________________________________________


CAMBREX CORP  (CBM)                         BALANCE SHEET

Fiscal year ends in December.                        2013-12         2014-12         2015-12         2016-12         2017-12             

Assets

Current assets

Cash

Total cash                                        22,745,000      45,518,000      43,974,000      74,141,000     183,284,000

Receivables                                       71,276,000      77,124,000      90,920,000     110,622,000      75,144,000
Inventories                                       89,965,000      85,630,000     109,920,000     123,184,000     138,542,000
Prepaid expenses                                   5,631,000       8,688,000       7,187,000       7,960,000       4,217,000
Other current assets                              12,943,000      10,610,000       7,278,000       6,748,000      20,891,000
Total current assets                             202,560,000     227,570,000     259,279,008     322,655,008     422,078,016

Non-current assets

Property, plant and equipment
Gross property, plant and equipment              529,953,984     494,728,992     511,192,000     540,148,992     625,107,968
Accumulated Depreciation                        -357,988,000    -331,161,984    -324,704,992    -323,056,992    -370,808,992
Net property, plant and equipment                171,966,000     163,567,008     186,487,008     217,092,000     254,299,008

Equity and other investments                      13,364,000         665,000               0               0               0
Goodwill                                          38,670,000      43,912,000      32,063,000      40,323,000      43,626,000
Intangible assets                                  4,011,000       8,902,000       6,691,000      14,800,000      13,868,000
Deferred income taxes                             19,799,000      38,424,000      19,259,000      13,061,000       3,198,000
Other long-term assets                             7,667,000       4,032,000       1,760,000       3,934,000       3,496,000
Total non-current assets                         255,476,992     259,502,000     246,260,000     289,209,984     318,487,008

Total assets                                     458,036,992     487,072,000     505,539,008     611,865,024     740,564,992 

Liabilities and stockholders' equity

Liabilities

Current liabilities
Short-term debt                                            0               0      30,000,000               0               0
Accounts payable                                  29,052,000      43,670,000      39,257,000      42,873,000      35,017,000
Taxes payable                                     10,168,000       5,420,000       8,469,000       9,469,000          43,000
Accrued liabilities                               26,211,000      26,893,000      26,850,000      26,313,000      27,451,000
Deferred revenues                                 20,121,000      14,095,000      16,298,000       7,506,000       4,707,000
Other current liabilities                         11,719,000       8,701,000       8,928,000       9,301,000      15,323,000
Total current liabilities                         97,271,000      98,779,000     129,802,000      95,462,000      82,541,000

Non-current liabilities
Long-term debt                                    79,250,000      60,000,000               0               0               0
Deferred taxes liabilities                        12,835,000      10,545,000       7,735,000       6,921,000       7,806,000
Deferred revenues                                          0               0               0      39,000,000      39,000,000
Pensions and other benefits                       40,123,000      50,949,000      42,661,000      43,109,000      41,141,000
Other long-term liabilities                       18,338,000      15,573,000      14,506,000      21,946,000      25,213,000
Total non-current liabilities                    150,546,000     137,067,008      64,902,000     110,976,000     113,160,000

Total liabilities                                247,816,992     235,846,000     194,704,000     206,438,000     195,700,992 

Stockholders' equity

Common stock                                       3,223,000       3,284,000       3,353,000       3,393,000       3,427,000
Additional paid-in capital                       109,765,000     119,265,000     131,980,000     153,680,992     165,979,008
Retained earnings                                131,178,000     188,480,992     245,698,000     327,376,000     429,825,984
Treasury stock                                   -14,984,000     -14,823,000     -14,747,000     -13,503,000     -12,140,000
Accumulated other comprehensive income           -18,962,000     -44,981,000     -55,449,000     -65,520,000     -42,228,000
Total stockholders' equity                       210,220,000     251,226,000     310,835,008     405,427,008     544,864,000
Total liabilities and stockholders' equity       458,036,992     487,072,000     505,539,008     611,865,024     740,564,992

____________________________________________________________________________________________________________________________________________


CAMBREX CORP  (CBM)                         Statement of CASH FLOW

Fiscal year ends in December. USD.                   2013-12         2014-12         2015-12         2016-12         2017-12             TTM           

Cash Flows From Operating Activities
Net income                                        25,915,000      57,303,000      57,217,000      81,678,000     102,450,000     106,643,000
Depreciation & amortization                       22,473,000      23,826,000      22,061,000      24,665,000      31,848,000      32,180,000
Deferred income taxes                              5,902,000     -16,025,000      19,736,000       8,556,000       9,030,000       9,078,000
Stock based compensation                           2,825,000       5,002,000       5,599,000       7,766,000       8,914,000       8,778,000
Change in working capital                         -9,706,000      -2,028,000     -25,650,000      10,251,000      -5,231,000     -24,443,000
Accounts receivable                              -27,707,000      -8,955,000     -14,378,000      -5,120,000      40,651,000     -17,785,000
Inventory                                        -19,328,000      -9,062,000     -32,721,000     -23,679,000     -13,283,000      14,905,000
Prepaid expenses                                  -2,651,000      -5,766,000       4,268,000        -729,000      -8,123,000     -10,885,000
Accounts payable                                  10,107,000      12,369,000      10,334,000       1,778,000     -20,114,000      -6,008,000
Other working capital                             29,873,000       9,386,000       6,847,000      38,001,000      -4,362,000      -4,670,000
Other non-cash items                             -10,535,000      -3,110,000       4,643,000      -9,638,000       2,004,000       5,245,000
Net cash provided by operating activities         36,874,000      64,968,000      83,606,000     123,278,000     149,015,008     137,480,992

Cash Flows From Investing Activities
Investments in property, plant, and equipmen     -57,320,000     -23,323,000     -62,491,000     -49,714,000     -52,143,000     -63,762,000
Acquisitions, net                                          0      -2,426,000               0     -24,275,000       2,836,000               0
Other investing activities                           723,000         951,000       2,252,000          13,000               0       2,836,000
Net cash used for investing activities           -56,597,000     -24,798,000     -60,239,000     -73,976,000     -49,307,000     -60,926,000

Cash Flows From Financing Activities
Debt issued                                       70,950,000      25,750,000               0               0               0               0
Debt repayment                                   -55,700,000     -45,000,000     -30,000,000     -30,000,000               0               0
Other financing activities                         2,923,000       4,725,000       7,261,000      12,704,000       4,781,000       6,778,000
Net cash provided by (used for) financing         18,173,000     -14,525,000     -22,739,000     -17,296,000       4,781,000       6,778,000

Effect of exchange rate changes                      744,000      -2,872,000      -2,172,000      -1,839,000       4,654,000       5,061,000
Net change in cash                                  -806,000      22,773,000      -1,544,000      30,167,000     109,143,000      88,394,000
Cash at beginning of period                       23,551,000      22,745,000      45,518,000      43,974,000      74,141,000      99,174,000
Cash at end of period                             22,745,000      45,518,000      43,974,000      74,141,000     183,284,000     187,568,000

Free Cash Flow
Operating cash flow                               36,874,000      64,968,000      83,606,000     123,278,000     149,015,008     137,480,992
Capital expenditure                              -57,320,000     -23,323,000     -62,491,000     -49,714,000     -52,143,000     -63,762,000
Free cash flow                                   -20,446,000      41,645,000      21,115,000      73,564,000      96,872,000      73,719,000
____________________________________________________________________________________________________________________________________________





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Average to Current P/E Ratios
              (CBM)     Cambrex Corp.

                               2013    2014    2015    2016    2017

          Annual Earnings:     0.84    1.81    1.76    2.48    3.06
Average Price During Year:    13.72   20.38   39.77   45.58   54.21

                P/E Ratio:    16.33   11.26   22.60   18.38   17.72

 Average 5-Year P/E Ratio  =  17.26
             Current Price =  47.3

Previous 5 Quarter Earnings:   0.60    0.75    0.52    1.20    0.72

           Current Annualized (Last Four Quarters) Earnings =   2.44
                                                           ________
                                 Average PE / Current PE =     0.89
                                                           --------

                                      ...a number above 1.00 is good
                                                1.00 or below is bad


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Financial Ratios

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Intrinsic Value (DCF)

Intrinsic Value by Discounted Cash Flow Method:

Intrinsic Value



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Fair Value Estimator

Fair Value Estimate:

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Projected Earnings

Earnings Estimates
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Research Reports

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Analysts' Opinions

Analysts' Opinion 1
Analysts' Opinion 1
Analysts' Opinion 1
Analysts' Opinion 2



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Insider Activity

Insiders Chart Insider Trades
Insider Trades
Executive Compensation Executive Compensation



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Institutional Activity

Institutional Orders to Buy or Sell:

institutions 1
Ownership:

institutions 2


How Institutional Holdings Can Be Reported as > 100% ?

Many investors choose to research the percentage of a company's stock that is being held by institutional investors as a way to gauge where larger investors are investing their money. Such institutions may include mutual funds, pension funds, big banks and other large financial institutions.

It is obviously not technically possible for any shareholder or category of shareholder to hold more than 100% of a company's outstanding shares. Therefore, when you see investment information websites reporting institutional holdings exceeding the 100% mark, something is amiss with the data. There are two likely sources that are responsible for the reporting errors.

First, the figures released in an institution's report correspond to an "institutional holdings date." These can differ somewhat among the various institutions holding a company's stock, resulting in differences that could impact the reported percentage for total institutional holdings being displayed. The data presented are updated monthly with a lag of approximately four weeks. As a result, even a slight imprecision in the reporting dates among one or more institutions could throw off the count and make it appear as though one shareholder or institutional investor could hold more than 100% of a company's outstanding shares.

Sources of Confusion

Second, when checked with Ownership Analyzer, which provides data on institutional investors' holdings, the disparity is made somewhat clearer. Here is a summary of their take on the most likely cause of distorted institutional holdings percentages:

Let's assume that company XYZ has 20 million shares outstanding and institution A owns all 20 million. In a shorting transaction, institution B borrows 5 million of these shares from institution A and sells them to institution C. If both A and C claim ownership of the shares shorted by B, the institutional ownership of XYZ could be reported as 25 million shares (20 + 5), or 125% (25/20). In this event, the institutional holdings may be incorrectly reported as more than 100%.

In cases where reported institutional ownership exceeds 100%, actual institutional ownership would need to already be very high. While somewhat imprecise, arriving at this conclusion helps investors to determine the degree of the potential impact that institutional purchases and sales could have on a company's stock overall.

Institutional ownership and sponsorship of a particular company's stock, often driven by factors other than fundamentals, is not always a good gauge of stock quality. Investors taking a fundamental approach should take the time to understand the connection between a company's fundamentals and the interest the company attracts from large institutional investors.

Many investors quickly learn to appreciate the significance of institutional shareholders - the mutual funds, pension funds, banks and other big financial institutions. These types of investing entities are often referred to as "smart money" and are estimated to account for as much as 70% of all trading activity. This professional stock buying is called institutional sponsorship and is believed by many stock watchers to send a strong message about a company's health and financial future.

However, investors with a fundamental approach need to understand the connection between a company's fundamentals and the interest the company attracts from large institutions. Institutional sponsorship, often driven by factors other than fundamentals, is not always a good gauge of stock quality.

The Dependability of Institutions

The argument that institutional sponsorship signals strong fundamentals makes a lot of sense. Big institutions make their living buying and selling stocks. Working hard to buy stocks that are undervalued and offer good prospects, institutional investors employ analysts, researchers and other specialists to get the best information about companies. The institutions meet regularly with CEOs, evaluate industry conditions and study the outlook for every company in which they plan to invest.

Besides, the institutions with large stakes have a stake in increasing the value of their shareholdings. Big institutional investors can exercise significant voting power and impact strategic decision making. These shareholders tend to promote value-driven decisions and create shareholder wealth by ensuring that management maximizes the stream of earnings. Broadly speaking, research shows that high ownership concentration generally leads to better monitoring of management, leading to higher stock valuation.

Academic research suggests that institutional holdings pay off. In their study "Does Smart Money Move Markets?," which was published in the Spring 2003 edition of Institutional Investor Journals, Scott Gibson of the University of Minnesota and Assem Safieddine of Michigan State University compared changes in total institutional ownership to stock returns over the each quarter from 1980 to 1994. During the 15-year period, stocks with the largest quarterly increase in institutional ownership (about 20% of all stocks) consistently posted positive returns.

William J. O'Neill, founder of Investor's Business Daily and creator of the CANSLIM stock selection methodology, argues in his book "How to Make Money in Stocks" (1988) that it is important to know how many institutions hold positions in a company's stock and if the number of institutions purchasing the stock now and in recent quarters is increasing. If a stock has no sponsorship, the odds are good that some looked at the stock's fundamentals and rejected it.

When the Dependability Becomes Instability

Of course, you can have too much of a good thing. O'Neil is careful to point out that while institutional sponsorship is attractive, a lot of institutional ownership can be a sign of danger. If something goes wrong with a company and all the institutions holding it sell en masse, the stock's valuation can tank - regardless of fundamentals.

Think of a stock as a swimming pool. The water level is analogous to the stock price, and elephants represent institutional investors. If the elephants suddenly start stepping into the pool (buy the stock), the water level (the price of the stock) will rise very quickly. However, if the elephants get spooked and leap out of that pool (or sell the stock), then the water level (price of the stock) will fall rapidly.

Remember, institutions are not only investors but also traders. In principle, they will put money into stocks only after lots of fundamental analysis, identifying where the stock price should be and compare that to where it is. In practice, however, they often forego fundamental analysis for the signals emitted by technical indicators. Because their main worry is whether the stock price is going up or down, institutions will often concentrate on whether the price direction has any momentum.

A stock with a lot of institutional support may be close to the peak of its valuation, or full of elephants. When every mutual and pension fund in the land owns a chunk of a particular stock, it may have nowhere to go but down. Look at the meltdown of technology stocks in 2000 and 2001. Companies like Cisco, Intel, Amazon and others had an unprecedented amount of institutional sponsorship, but as the subsequent collapse of their share price demonstrated, they also had unattractive fundamentals.

The legendary investor, Peter Lynch, thinks institutional investors make poor role models for individual investors. In his best-selling book "One Up on Wall Street," he lists thirteen characteristics of the perfect stock. Here's one of them: "Institutions Don't Own It and the Analysts Don't Follow It." Lynch brushes aside the notion that companies without institutional support carry the risk never being discovered: he argues that the market eventually finds undervalued companies with solid fundamentals. These companies are never out of sight for long. By the time institutional investors discover these hidden gems, the companies will no longer be hidden but fairly valued, if not overvalued.

Finding Out Who Holds the Institutional Sponsorship

It all comes down to the quality of institutional sponsorship. With a little extra research, investors can find out which institutions own the stock. For spotting companies with good fundamentals, you can determine if the stock is owned by funds with good track records.

One way to see if a stock has some institutional support is by checking its trading activity for block trades. A block trade, which is a single trade of a large number of shares, typically has a value of at least $100,000. Normally only an institutional investor has the money to buy such blocks.

Otherwise, visit Multex Investor, which provides a list of links to research reports online, some of which may identify institutional holdings. Many of the Multex reports are free.

Of course, the easiest way to find out if a company has some institutional sponsorship is simply to ask it. Often the company's investor-relations web page will provide a listing. Otherwise, ask the company's representative if any of its shares are held by mutual funds, pension funds or other institutional investors. He or she should be able to tell you which institutions are shareholders.

The Bottom Line
Although logic and statistics show that institutional sponsorship is a good indicator of a good company, investors should be aware that institutional investing is not always driven by quality fundamentals. Before you depend on the assumption that smart money is the leader in judging fundamentals, make sure you determine whether the institutions are investing for the same reason you are.


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Sentiment

sentiment

Zenith uses the "sentiment" score above or below 50 to award a positive or negative point in the Decision Matrix.

sentiment sentiment sentiment



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Short Interest Ratio

As the short interest rises as a percentage of average daily share volume (Days to Cover), this is considered a measure of negative sentiment. Similarly, a decrease in that percentage is considered positive sentiment.

short interest short interest


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Standard & Poor's

S&P Stock Report (Requires Adobe Acrobat Reader)



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Management's Discussion of Results of Operations Excerpts

Click Here for Management's Discussion Excerpts



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Channeling Potential

 
The summary below includes a value for `Degree,' which refers on a
scale of 1 to 10 the range of a channel in the period under consi-
deration compared to the total range of price movement. It also looks
for the last closing price to be within the channel, otherwise zeroed.
The `Index' is the `Degree' weighted for volatility.  Generally, the
the higher the index, the more suitable is the stock for trading as
a `rolling stock' between channel high and low points.

Results for CAMBREX CORP.:
Symbol? CBM
Total Months Available: 102
       Months in Cycle?   4

Months Covered by Periods:  12

Period 1           Period 2          Period 3
   H1      L1        H2      L2        H3      L3
  62.30   48.70     57.60   42.55     56.35   44.92

RANGE   =  62.30  TO   42.55            Close =  47.20
CHANNEL =  56.35  TO   48.70           Degree =   4
Volatility =  16.21%                    Index =   6
Channel Chart



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MACD Histogram Divergence

The theory is that connecting the two most recent peaks or valleys of the MACD histogram will signal the direction of the next major move.



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Intraday Chart

2 Days:



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Val Idea

3 out of 8 favorable, (negative opinion.)

Val Idea
Val Idea


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Stock Consultant

Stock Consultant Stock Consultant


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Point & Figure Chart

P & F Chart


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Wall Street Analyzer






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Marketspace Chart

Marketspace Chart



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Time Series Forecast

Time Series 1 Time Series 2


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Neural Network Prediction

"Neurostock" can only track long trades. Therefore its performance, as tracked by itself on stocks which are consistently falling, may not appear as good as it could if each "sell" signal were a "short sale."

Neural Chart
Heading
Neural Trades Neural Prediction



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Ultimate Trading Systems

2 out of 3 of the ultimate systems favor a downmove.


System Below:
Short term outlook: Positive: Bright Green, Negative: Bright Red
Long term outlook: Postive: Dark Green, Negative: Dark Red.




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Recommendation

Decision Weighting Factors
FactorsWeighted Points
News + 1
Comparison + 1
Industry + 1
Bond Issue 0
Zenith Index + 1
Non-GAAP vs. GAAP Earnings - 1
Cash Flow + 1
Average to Current P/E - 1
Ratios + 1
Market Grader + 1
Intrinsic Value DCF - 1
Fair Value Estimator + 1
Projected Earnings + 1
Research Reports - 1
Analysts + 1
Executive Perquisites - 1
Insider Activity - 1
Institutional Activity + 1
Management Reporting + 1
Short Interest + 1
Sentiment - 1
Standard & Poor's + 1
MACD Histogram Divergence + 1
Val Idea - 1
Stock Consultant - 1
Point & Figure - 1
Wall Street Analyzer + 1
Marketspace Chart + 1
Time Series Chart + 1
Neural Network + 1
Stock Options + 1
Ultimate Trading Systems - 1
Total + 10
Place 615 shares of Cambrex Corporation (CBM) on the Active List.

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