RealMoney Silver - Insider Purchases & Buybacks: CY

Insider Purchases & Buybacks: CY
By Jason Raznick
RealMoney.com Contributor
3/6/2008 2:33 PM EST

Investors love to see a stock buyback. After all, it cuts the share count (thereby boosting EPS) and signals management's confidence in the share price at current levels. However, it is important to check out the company's fundamentals and industry operating environment before putting your money behind it.

Cypress Semiconductor (CY) has recently increased the number of shares it plans to buy back. The chipmaker's board has authorized the repurchase of an additional $300 million shares, doubling of the ongoing buyback program to $600 million. Cypress has repurchased 12.2 million shares for $269 million since the initiation of the program in January 2007.

(On Stockpickr, you can see the rest of the insider trades and buybacks).

Cypress' sales grew 50% from a year ago to $431 million, but fell 4% sequentially. On a GAAP basis, diluted earnings per share fell to $0.04 in the December quarter, less than the $0.09 a share earned in the third quarter of 2007 and well below the $0.18 a share earned in the fourth quarter of 2006. Cypress witnessed a broad-based and unexpected decline in orders in December.

Cypress also has strong exposure to the solar-power industry, thanks to its controlling interest in Sunpower (SPWR) . That was a big positive earlier in the year when solar stocks were surging.

But investors' taste for solar companies has cooled, sending shares of Sunpower down more than 50% in the last three months. The costs associated with producing solar energy are still very high, which bodes ill in the face of a slowdown in consumer spending. As noted earlier, Cypress' core semiconductor market is also softening.

You can see the list of investment funds that own Cypress at Stockpickr.com. Third Point LLC, a $5.5 billion hedge fund founded by Daniel Loeb, has recently reduced its stake in the company. Third Point focuses on activist investing, and has produced a 28.9% average annual return.

The fund also owns Questar (STR) , Synovus Financial (SNV) and TXU (TXU) .

Another smart fund that has cut its holding of Cypress is Redstone Investment Management, which also owns Viasat (VSAT) , Archer Daniels (ADM) and Gamestop (GME) .

Cypress' shares have fallen some 50% since hitting the 52-week high in late December. And a tepid economic environment this winter is likely to keep shares depressed in the near-term. Earlier this week, Cypress also announced problems rolling over $67.8 million in short-term debt due to trouble in the auction-rate market. That's another reason to stay on the sidelines for now, despite the appeal of large stock buybacks.

(On Stockpickr, you can see the rest of the insider trades and buybacks).

At the time of publication, Raznick did not hold positions in Cypress Semiconductor, although positions may change at any time.

Jason Raznick is president of Easy Stock Alerts and has been involved with the capital markets for several years. He has worked for Merrill Lynch, Dynamis and Tricap Holdings, a joint venture with Fortress Investment Group. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Raznick appreciates your feedback; click here to send him an email.

Read our conflicts and disclosure policy.