Are Institutions Curtailing Interest in Ciena Corporation (NYSE:CIEN) Stock?

According to the latest SEC Filings, firms & funds owning shares of Ciena Corporation (NYSE:CIEN) have decreased their positions by -4.97%.  Institutions now own 95.40% of the company.

Investing in the stock market has traditionally offered bigger returns than other types of investments. Along with the opportunity for higher returns comes a higher amount of risk. Stocks can be exposed to both market risk and business or financial risk. Market risk may be evident when the overall market takes a nose dive. Investors may hold stock of a company that has been performing great, but due to poor market conditions, the stock decreases in value. Investors may look to offset this risk by investing in other vehicles that don’t tend to move together. The business risk with stocks involves factors that may cause a company to perform poorly. This may include bad management, heightened competition, and declining company profits. Investors may try to limit this risk by creating a diversified portfolio including stocks from different sectors.

Big organizations that control vast sums of money, such as mutual funds, insurance companies or pension funds, that buy securities are known as “institutional investors”.  Unlike individual investors, institutional investors trade in massive blocks of 10,000 or more shares per transaction.  The sheer size of these trades significantly affect the price of a share. 

PROS AND CONS

Peter Lynch says in his best-selling book, “One Up on Wall Street”, that institutional ownership is a negative thing.  “Institutions don’t own it and the analysts don’t follow it”.  He favors the stocks that big investment groups pass on because he feels that these stocks are undervalued.  In contrast, Investor’s Business Daily’s William O’Neil thinks that institutional investors are important to driving up stock prices because they provide the largest source of demand for stocks.  O’Neil argues that if a stock has no institutional ownership, it means they have already passed on it.  He regards institutional ownership as a desirable stock trait in his book, “How to Make Money in Stocks”. 

Investors often look favorably upon stocks who have a large amount of institutional ownership.  These large companies often employ a team of analysts to perform financial research before purchasing a large block of stock, making their decisions influential in the eyes of other investors.

Due to the financial commitment that these companies make into research, these institutions aren’t quick to sell off their shares.  But when they do, however, it can drive down the price. 

TECHNICAL ANALYSIS

Technical analysts have little regard for the value of a company. They use historic price data to observe stock price patterns to predict the direction of that price going forward.  Analysts use common formulas and ratios to accomplish this.

Ciena Corporation (NYSE:CIEN)’s RSI (Relative Strength Index) is 41.85.  RSI is a technical indicator of price momentum, comparing the size of recent gains to the size of recent losses and establishes oversold and overbought positions.

RETURNS AND RECOMMENDATION

Shareholders can expect a return on equity of 41.70%.  Calculated by dividing Ciena Corporation’s annual earnings by its total assets, investors will note a return on assets of 20.90%.  Finally, Ciena Corporation’s return on investment stands at 6.80% when you divide the shareholder’s return by the cost.  The consensus analysts recommendation at this point stands at 2.20 for Ciena Corporation (NYSE:CIEN).  This is based on a 1-5 scale where 1 indicates a Strong Buy and 5 a Strong Sell.

Investors often hear the saying “buy low, sell high”. This may seem highly obvious to anybody looking to get into the stock market. Even though investors typically know they should do this, novices tend to do just the opposite, buy high and sell low. Often times, amateur investors will get carried away when a stock is trending higher. They may attempt to get in on the stock after a big move with hopes of the stock going higher and an overall thought that relates to the fear of missing out. Often times, investors will find themselves in a precarious situation when this occurs. They might have taken a chance on a stock that maybe was too good to be true. Investors may regret buying after the big move when the price has far exceeded the underlying value. Closely watching the fundamentals may help investors avoid getting into sticky situations such as buying too high.

Disclaimer: The views, opinions, and information expressed in this article are those of the authors and do not necessarily reflect the official policy or position of any company stakeholders, financial professionals, or analysts. Examples of analysis performed within this article are only examples. They should not be utilized to make stock portfolio or financial decisions as they are based only on limited and open source information. Assumptions made within the analysis are not reflective of the position of any analysts or financial professionals.

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