Via ConvergEx's Nick Colas,
Even though we are an institutional brokerage firm, we always keep a weather eye on the state of retail investing in the U.S. There is, of course, the old saw that this batch of buyers doesn’t get involved until the top; therefore, it makes sense to see if they are getting too “Bulled up”.Then there is the fact that retail “Cult” stocks can hold premium valuations far longer than those without such sponsorship.
To get a look at retail’s top stocks, we went to Fidelity’s website, which shows to anyone interested what 10 names their retail customers traded most today. [11] From the top of this list: AAPL (4,500 orders, better to buy), FB (2,200 orders, much better to buy), GPRO (1,400 orders, better to buy) and so forth.
[12]
The rest of the list is in this note, but we also took a look at another vector: how often does the general public “Google” a particular symbol over time, and who exactly is doing the searching? That’s where the notion of “Retail interest” in a stock gets, well, interesting. As it turns out, the vast majority of Google searches for “AAPL”, “TSLA”, and “MSFT” come from the cities where these companies are headquartered. If that’s good or bad we’ll leave it up to you to decide.
Apple’s stock is trading down after hours as I write this note, which likely means that tomorrow’s news will include a healthy dose of “Apple has to buy something! Some company with a large addressable market!” OK, they’ve been saying that for a while now, I know… But at least some market commentators will say the lack of transparency on Apple Watch sales means the Cupertino-based company should enter new markets and jump start that initiative with a meaningful acquisition. Will it be in automobiles? Or other electronic gadgets? Social networking? Over the years Apple’s cash hoard has made it “Potential Buyer #1” in what must be thousands of investment banking pitch books to a slew of companies, public and private.
So what happens when you type “Apple buys…” into Google? The search engine has an autofill function that tries to finish this phrase, based on what other users have entered before you. Most of the autofill answers include things like “Beats”, the headphone company, or “Linx”, the maker of camera components. Both of those are announced transactions, so that makes sense. After that, Google’s users have a pretty wide arrange of ideas, presented here with no additional comment: Tesla, Android, Samsung, and Spotify.
The institutional side of Wall Street often looks at retail investors – the type that create such lists – with a combination of a bemused and jaundiced eye. On the one hand, retail sponsorship of a stock is a powerful factor in creating a “Cult” following and a premium equity valuation. Steve Jobs, Lee Iacocca, Andy Grove, Lou Gerstner, and Jack Welch are historical examples and you can likely name a few of more recent vintage as well. And yet for their ability to identify superstar individuals, retail investors have a reputation for getting too optimistic at the top and too cautious at the bottom.
One exercise I regularly perform is to look at Fidelity’s website, where the online retail brokerage lists daily the top 10 names in terms of buy/sell orders. If you are a client ($2,500 minimum), you can actually see the top 30 names, but we’ll respect their terms of use and just outline what is visible to the outside world. Here are the key takeaways from today’s action:
Retail investors still trade a lot of single stocks rather than exchange traded funds. In Fidelity’s Top 10, there is only one ETF listed: NUGT, a 3X leveraged play on gold miners. Trading was pretty even on this name today, with roughly 600 orders each to buy and sell.
The top 3 names in terms of order flow today were: Apple, Facebook and GoPro. To give you a little sense of history, we did the same analysis three months ago and the top three names were Apple, Netflix and Facebook. NFLX was the 5th most traded name today, with PayPal slotting in at #4.
Every name on Fidelity’s Top 10 list had more “Buy” orders than “Sell” orders today, except one: Microsoft, with just over 200 “Buys” and 700 “Sells”. The rest of the list after the six already mentioned are: IBM, TSLA, MSFT, and LOCK. The last one isn’t commonly on the list, but today’s drop in price evidently brought in some purchase interest.
Last time around – 3 months ago – when we did this exercise the remainder of the list was: Schlumberger, GE, Alibaba, American Express, AT&T, and Bank of America.
So we know what retail investors think Apple should buy, and we can track which individual stocks have their favor – but what about some more information, like who searches for “AAPL” and “NFLX” and “GOOG”? Where do the individuals who have an interest in public market stocks live? There is a way to find out – just look at Google Trends, the online tool that allows you to track how many times a search user enters any word or phrase. Not only will you get a time series of the frequency of the search, but also where the search was done. Here’s what we found out for a few of the names mentioned above:
"AAPL”. Over the last 12 months, Google users have been searching less for this symbol. From a peak last September indexed to 100, the last full week count is just 37. No, we haven’t done an in-depth regression of what this means to stock prices, so maybe this is just noise. What isn’t just chatter is the search user location for “AAPL” – virtually all of it comes from Cupertino, Sunnyvale and Santa Clara. In other words, plenty of people have a deep interest in Apple’s stock, and they probably work for the company or its ecosystem.
“NFLX”. Interest in Netflix stock peaked just last week in terms of Google search trends. Unlike “AAPL”, the geographic locations of this search are quite diverse, including heavy traffic from San Francisco, New York, San Jose and Seattle.
“TSLA”. Search interest here is stable, according to Google search trend data. Like Apple’s search concentration near its home office, almost all the search interest comes from Fremont CA, the site of the company’s manufacturing plant, with a few other California cities mixed in: Mountain View, Sunnyvale, and San Francisco.
“MSFT”. Search interest for Microsoft’s symbol is steady over the past year, and interest in “MSFT” is very heavily concentrated in Washington State. The only city that cracks the top 5 for MSFT searches is San Francisco, but on a scale of 100 (Kirkland, near the Redmond Microsoft HQ), it is a 6.
“GOOG” and “GOOGL”. Taken together, interest in Google’s two symbols is modestly lower over the last year. Geographic interest is quite diverse, with New York taking second place for “GOOG”, ahead of San Francisco in fourth.
If you would like to see how much the search data matches up with your ideas of how popular these names are among retail investors or the market as a whole, just go to Google Trends and enter the relevant symbols. We didn’t try symbols like “FB” or “GM” because they have other, non-equity market, meanings or online uses. And – again – there’s no backtest that can prove the data is predictive of future stock price moves. We use the work exactly as we’ve discussed here – as a piece of the retail investor mosaic.
