Top 10 Stocks With Big Insider Buying, Buybacks
James Altucher
08/09/07 - 06:16 AM EDT
One of the primary goals of Stockpickr.com is to allow everyday investors to see what the big-time investors are buying.
When a well-known savvy investor starts loading up on shares of a particular company, that's generally a bullish sign for the health of a stock because that person without a doubt invested a great deal of time conducting due diligence before making the investment.
Consider also that these investors have bankers, lawyers and consultants breaking down the business every which way imaginable.
The real icing on the cake, however, comes when that same company announces that an insider has purchased a large chunk of stock or, even better, when the board announces a new large share-buyback program.
As Jim Cramer often points out: "Insider selling happens all the time for many different reasons, but insiders only buy for one reason: They think their stock is going higher."
With all this in mind, each Thursday at Stockpickr we update the
Top 10 Insider Purchases and Buybacks portfolio, featuring 10 stocks that recently have had either big insider purchases or newly announced buybacks, as well as super-investors accumulating shares.
Moody's(MCO) makes this week's list thanks to a new $2 billion buyback plan set to begin immediately after its existing plan is finished. During the second quarter, the credit ratings company repurchased 7.7 million shares for $500 million.
The New York-based firm also released impressive second-quarter earnings last week that were highlighted by a 52% profit increase. The company saw net profit soar to $261.9 million, or 95 cents a share, from $172.1 million, or 59 cents a share, in the same quarter last year. Moody's also reported revenue of $646.1 million compared with $511.4 million the previous year.
We were also pleased to see Benchmark Equity Research reiterate a buy rating on Moody's with a $66 price target. (The stock closed Wednesday at $58.36.) The firm cited Moody's recent decline in share price, stellar second-quarter earnings and new buyback plan.
Based on management's cautious outlook for the second half of the year, Benchmark will also revise its own forecasts; even so, Benchmark is still a believer in Moody's. Said Benchmark: "Despite management's lower 2007 outlook, we are reiterating our buy rating on Moody's shares reflecting the stock's recent price decline, historically low valuation and the company's strong long-term growth prospects."
We try to follow investors who have been successful, and few have had the success of
Warren Buffett. So when we saw that Buffett was an investor in Moody's, we took notice. The investment accounts for 5.1% of his portfolio. Among his other major holdings is
Coca-Cola(KO).
Another all-star investment fund that owns Moody's shares is
Atticus Capital. The firm, which has $13 billion of assets under management, invests in global securities markets on behalf of major institutions, endowments, pension funds and private investors. Atticus recently added to its positions in
Goldman Sachs(GS) and
Morgan Stanley(MS).
With Moody's, we have a company committing to repurchase a large chunk of stock, outstanding second-quarter earnings, analyst support and some of the best investors out there buying up shares.
Next on the list is
Proctor & Gamble(PG). The consumer-products giant last week introduced a new three-year buyback plan worth up to $30 billion. At the company's current market cap of $200 billion, the repurchase plan would account for 12% to 15% of its outstanding shares, and the buyback rate of between $8 billion and $10 billion a year makes the new plan significantly more aggressive than last year's repurchase of $5.6 billion.
The maker of Pampers and Oil of Olay beauty products also saw fourth-quarter profits surge 19%. The company beat forecasted earnings with profit of $2.3 billion, or 67 cents a share, for the quarter ended June 30, up from $1.9 billion, or 55 cents a share, in the previous year. Sales of its Gillette products continue to drive P&G's revenue, with blade and razor sales increasing 18% to $1.4 billion. Total sales increased 8% to $19.3 billion.
The Cincinnati-based company anticipates generating a profit of 88 cents to 90 cents a share in the first quarter of 2008 and $3.44 to $3.47 a share for the full year. Analysts are looking for 91 cents for the quarter and $3.48 for the year.
Current credit market troubles shouldn't be a problem for the company going forward, said CFO Clayton Daley. P&G will "more likely be a seller of businesses rather than a net buyer." Commodity-cost pressure still remains, but the company hinted at raising prices if necessary.
"This marks the sixth consecutive year in which P&G delivered top-line growth at or above the company's targets," CEO A.G. Lafley said in a prepared statement. "These results were achieved at the same time the organization was integrating Gillette, which is progressing ahead of plan. Our strong cash generation results and our confidence in the business outlook have enabled us to substantially increase our share repurchase commitment for the next three years."
Bear Stearns analysts offer a positive outlook on P&G, saying, "We think the glass was half full" in the fourth quarter of 2007.
Stearns says it saw encouraging signs such as "attractive valuation; margin expansion, despite cost inflation; and improvements in core brands such as Crest and Olay."
In a recent report, Bear Stearns reiterated its outperform rating and slapped a $71 target price on the stock. "By the end of 2007, we see potential upside for PG to roughly $74, and downside to only $58," the analysts said. P&G shares closed at $65.16 Wednesday.
Adding to P&G's bullish case is the fact that
Prince Al-Waleed is betting on the stock. This member of the Saudi royal family is known for his international investments and multibillion-dollar business transactions.
We also like to see that the
Clipper Fund owns P&G stock. The Clipper Fund looks to provide long-term capital growth and capital preservation. The fund's investment adviser, Davis Selected Advisers, conducts extensive research to seek investments primarily in common stocks of large well-managed companies with durable business models that can be purchased at attractive valuations relative to their intrinsic value. The fund, which was up 15.3% in 2006 and boasts a 10-year average annualized return of 12.2%, also owns
Costco(COST).
With P&G, we like the new huge stock buyback, its great quarter with very little risk going forward, support from one of the top equity research firms and top-of-the-line investors buying shares. Not a bad opportunity.
And finally,
Time Warner(TWX) makes the list. The world's largest media group announced a $5 billion stock-repurchase plan last Wednesday, right on the heels of a just-completed $20 billion program. The company says half of the shares should be bought back by January, just in time for its full-year results.
On the same day, the New York-based media conglomerate also revealed solid second-quarter earnings that beat forecasts and rose 5%. From April to June, the company earned $1.07 billion, or 28 cents a share, vs. $1.01 billion, or 24 cents a share, in the same quarter last year. Revenue increased 6% to $11 billion.
However, some investors expressed concerned over Time Warner's earnings. AOL could be part of that concern -- revenue fell 38% to $1.3 billion, which is due to the loss of paying Internet subscribers. Chairman and CEO Dick Parson said a slowdown is expected as AOL switches from subscription-based to an advertising revenue-based structure. Still, he is confident his business strategy will pay off.
"Users usually need a little time to become accustomed to the redesigned pages, and advertisers naturally want to see how the new program performs before reinvesting significantly," Parson said. "Improvements like these to AOL's programs and products, which we're confident will yield long-term benefits, will come with some disruptions."
Pali Research supports the company's business strategy and reiterated its buy rating on Time Warner shares, saying: "We were literally shocked at how positive management of TWX sounded" on its quarterly conference call. Pali raised its target price for Time Warner to $25 -- a nice premium from the stock's current price of roughly $18 a share.
We were also pleased to see that
Jana Partners is investing in Time Warner. The $5 billion activist fund, run by Barry Rosenstein, takes a value-oriented and research-intensive approach to investing. Some of its other positions include
Mirant(MIR) and
Valero Energy(VLO).
Dodge & Cox is another legendary fund that owns Time Warner. The $100 billion-plus investment fund has a long-term focus and employs a rigorous price discipline. The firm's Stock Fund has posted an annual average return of 14.5% over the past 10 years and 14.9% over the past 20 years.
Hewlett-Packard(HPQ) and
Sony(SNE) are some of its other core holdings.
So with Time Warner, we have a large share-buyback plan, solid earnings, a CEO with a focused business turnaround strategy and plenty of noteworthy successful firms buying the stock. Another solid setup.
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 as well as Cramer's
"Mad Money" Buybacks.
