Top 10 Stocks With Big Insider Buying, Buybacks
James Altucher
07/12/07 - 06:24 AM EDT
Part of the philosophy behind Stockpickr.com is to follow in the footsteps of smart people.
This could mean piggybacking great investors like Warren Buffett or George Soros or it could mean following the lead of CEOs, employees and directors who are buying up shares of their companies. These are people who know the intimate details of their companies far better than you or me.
The perfect setup, however, is when one of these company insiders or an entire board -- in the case of a buyback -- are making long bets on the stock along with savvy investors.
With that in mind, each Thursday at Stockpickr we update the
Top 10 Insider Purchases and Buybacks portfolio, featuring stocks that have had either big insider purchases or newly announced buybacks as well as super investors accumulating shares.
Charles Schwab(SCHW Quote) makes this week's list. The San Francisco brokerage firm recently said it will buy back more than 100 million shares, about 7% of the company's outstanding shares, and issue a special one-time dividend
of $1 a share. The $3.5 billion buyback prices shares between $19.50 and $22.50 each.
In the first quarter Charles Schwab saw profit rise 12%, marking the eighth consecutive quarter of double-digit earnings growth, as it delivered $273 million, or 22 cents a share. The company expects another strong quarter with earnings of 23 cents a share when it reports second-quarter numbers the week of July 16.
Analysts at Deutsche Bank view Charles Schwab's $3.5 billion capital restructuring plan as a positive catalyst and raised 2007 earnings estimates from 92 cents a share to 96 cents and 2008 estimates from $1.12 to $1.21. Analysts note the higher-than-expected buyback will go over favorably with investors, "as Schwab appears to be focused on creating shareholder value." Deutsche Bank maintains its buy rating, saying "our view is that the total return potential to our 12-month price target is attractive."
Among the investors making bullish bets on Schwab is
Baron Partners (BPTRX), a fund with a Morningstar rating of four stars that's run by Ronald Baron. The fund's objective is to invest in growth and profitability with the potential to increase in value at least 100% over four subsequent years. The fund invests in
Toll Brothers(TOL Quote) among others.
PowerShares Dynamic Aggressive Growth (PGZ) also owns the stock. This fund seeks out stocks within the aggressive growth market segment that have the greatest capital appreciation potential. Some other stocks in this fund are
Schlumberger(SLB Quote) and
DirecTV(DTV Quote).
So with Schwab, we have an aggressive buyback, a nice dividend for shareholders, solid earnings growth and investors who see more potential growth. Those positive factors suggest it may be time to take a closer look.
Next on the list is
Tektronix(TEK Quote), which recently added $350 million to its share-buyback program.
That addition brings the program's total buying power to $691 million, or 20.5 million shares, representing 26% of total outstanding shares. The Beaverton, Ore., company, which makes test and measurement equipment for the computer and chip industry, also recently issued its 6-cent quarterly dividend.
Tektronix saw mixed results in the fourth quarter, as revenue rose 3.2%, but profits fell 12% due to costs that outweighed sales growth. On a positive note, its core instrument business was up 3% and operating margin improved a percentage point to 16.4%.
Though Tektronix experienced a tough fourth quarter, analysts at Thomas Weisel Partners still find the valuation attractive and maintained their outperform rating, raising their price target from $37 to $39. They offered the following thesis:
Tektronix appears well-positioned to benefit from its rich portfolio of products and solid new product pipeline targeting expanded addressable markets. Despite volatility in its communications test business, we expect an improving trajectory in key metrics through full-year 2008, and solid growth and margin expansion through full-year 2009. ... We expect improving metrics over the next several quarters to drive acceleration in earnings growth and a multiple expansion for the stock.
When a stellar investor like
Bruce Sherman at Private Capital is in a stock, we take notice. Sherman's investment and money management philosophies are rooted in a basic value approach to buying stocks. It has worked out well as he has returned an astounding 20% annually since starting his fund in 1986. Besides Tektronix, Sherman's fund owns
Alltel(AT Quote) and
Hewlett-Packard(HPQ Quote).
Another noteworthy investor in Tektronix shares is
Royce & Associates, which is known for investing in small-cap companies that are trading significantly below the firm's estimate of their current worth.
So with Tektronix we have a huge buyback, confident analysts and noteworthy investors. That makes for a pretty nice setup.
Next is
Chesapeake Energy(CHK Quote). The oil and natural gas company hit our radar screen after CEO Aubrey McClendon recently purchased 101,500 shares for about $3.5 million.
The first thing you may notice in looking at Chesapeake is that it recently said its first-quarter net earnings plummeted more than 60% from last year. Chesapeake attributed the decline in profits to shrinking exploration-and-production margins and a $193 million charge from a mark-to-market hedging program.
Excluding the charge, Chesapeake earned $425 million, or 87 cents a share, in the quarter. On that basis, analysts at Thomson Financial were expecting 78 cents. So the company's adjusted profits still exceeded expectations.
UBS also reiterated its buy rating and raised its price target to $46 from $43 as well as its 2007 EPS estimates, to $7.40 from $7.20.
Another positive for the company is that it recently announced it had acquired an additional 8,500 net acres in the core of the Barnett Shale in Tarrant County, Texas, putting Chesapeake well on its way to the goal of 30,000 acres. A Wachovia Research analyst believes this purchase should continue to force share price higher seeing as Barnett continues to be the company's growth driver.
Despite the tough first-quarter earnings, the Oklahoma City-based company has returned 22% year to date, and analysts like ValuEngine see more upside to come. ValuEngine has issued a strong buy, a rating it doles out to only 2% of the 4,000 companies it covers. In issuing that strong buy, ValuEngine said of Chesapeake: "The company exhibits attractive company size, P/E
ratio and risk."
These are all positives, but what is even more interesting is that one of my favorite investors, John Buckingham of
Al Frank Asset Management, invests in the stock. Buckingham is a well-known value investor who has a good eye for finding quality, cheap stocks, as is evidenced by the fund's 16% annual returns since its inception in 1998.
Chesapeake is also owned by
Mason Hawkins, the well-regarded investor who manages Southeastern Asset Management and its $31 billion in client and investment company assets. Aside from Chesapeake, his fund also counts
Dell(DELL Quote) and
Sprint(S Quote) among its holdings.
So with Chesapeake, we have the CEO of the company recently buying a sizable chunk of shares, two excellent value investors in the name and analysts that like the stock. That makes it worth a look.
To see the rest of this week's picks, check out Stockpickr's
Top 10 Insider Purchases and Buybacks portfolio.
And for more insight into Stockpickr's Guide to Insider Purchases and Stock Buybacks, you can review each of the last few weeks' picks by visiting these portfolios:
You can also review
Barron's Top Insider Purchases from the prior week as well as Cramer's
Mad Money Buybacks.
