Top 10 Stocks With Big Insider Buying, Buybacks
James Altucher
12/13/07 - 11:37 AM EST
Updated from 6:14 a.m. EST
At Stockpickr.com, we keep track of the
Top 10 Insider Purchases and Buybacks each week. Here's the perfect setup in my mind: insiders buying the stock, the company buying back its own shares and a super investor like
Warren Buffett also making a bullish bet on the stock.
If I can get three out of three, I'm in heaven. If I can get two out of three, or even one out of three, I'm still pretty happy about the situation, particularly if the stock is cheap in other ways as well.
Each Thursday we update the Stockpickr
Top 10 Insider Purchases and Buybacks portfolio, featuring stocks that in recent days have had big insider purchases or newly announced buybacks, as well as super investors accumulating shares.
IBM(IBM) makes this week's portfolio. Big Blue recently announced plans for an accelerated repurchase of up to $1 billion of its shares in addition to a $12.5 billion accelerated share repurchase announced in May. The shares are being repurchased from three banks through accelerated repurchase agreements by the end of February 2008.
The company has an aggressive plan to increase earnings per share to $11 by 2010 from $6.97 in the most recent fiscal year. This involves stock buybacks, gross margin expansion in its software division and tinkering with contributions to its pension program.
The stock is currently off of its $121 high this year, mostly due to weak third-quarter software sales. However, the fourth quarter has historically been strong, and the company's service revenues are still growing, as are sales to emerging markets and small businesses.
A recent
Barron's article also noted that Bob Djurdjevic of Annex Research figures the shares are worth $125. He believes the financial services woes will last six to nine months. "Beyond that, sales will be on an upward spiral," he says.
It's also good to see that a firm like
Renaissance Technologies is a believer in IBM's stock. The New York-based hedge fund's $5 billion Medallion Fund is considered one of the most successful hedge funds, yielding higher returns than such legendary investors as
Bruce Kovner,
George Soros and
Paul Tudor Jones. A couple of its new positions include
Amazon.com(AMZN) and
Bank of America(BAC).
We also like to see that
LSV Value Equity Fund believes in IBM shares. This fund seeks long-term growth of capital and boasts a three-year return of 24%-plus.
So with IBM, we have a huge buyback as part of a three-prong plan to substantially increase earnings, a solid fourth-quarter outlook, analyst support with a nice target price and two well-known investors in the stock. It may be time to take a closer look at Big Blue.
Next on the list is
Dell(DELL). The computer giant recently announced a plan to repurchase $10 billion in common stock. The company noted that there was no set period for the buyback but that it has $15 billion in cash as well as strong quarterly cash flows to put toward the plan.
CEO Michael Dell added, "Dell is committed to a long-term share repurchase program as part of an overall capital allocation plan that supports growth and also returns value to shareholders."
In late November, Dell announced a 27% jump in third-quarter earnings sparked by growth in overseas markets like Brazil, solid demand for notebooks and falling prices for memory chips and other components. However, this fell just below analyst expectations, and the stock was subsequently hammered. Still, Dell outlined a long-term strategy to reignite growth, focusing on five key markets and products. "There's a lot of upside for us in the places that are growing the fastest," he said.
While Goldman took Dell off its conviction list (it just added the company a month ago), it did note, "although our thesis on Dell as a turnaround is intact, the timeline is not and the uncertainty is higher."
Michelle Warren, a senior research analyst with Info-Tech Research Group, added, "they've got this plan in place and it's a plan that will take them to a successful ending," Warren said. "It might be a new Dell to those who are outside looking in, but I think it still has the same pedigree that made them into the largest PC company a couple of years ago."
So both analysts still see the turnaround intact. In this environment, any misstep is likely going to get hammered. But with Michael Dell back at the helm and a strategy in place, I believe this company will turn around. The stock is also about 20% off its 30-day high.
We are glad to see the likes of
Wallace Weitz as a believer in the company. Weitz is a mutual fund family based in Omaha, Neb. Often called the "other Oracle of Omaha," Weitz favors the value-disciplined approach of Ben Graham combined with "a conviction that qualitative factors that allow a company to have some control over its destiny can be more important than statistical measurements, such as historical book value or reported earnings." Other Weitz holdings include
Countrywide(CFC).
It's also good to see that
Moore Capital is betting on Dell. Since 1990, the fund has returned more than 24% annually, making Louis Bacon one of the top fund managers of his generation. Other top Moore positions include
Cisco(CSCO), another recent buyback play, and
Intel(INTC).
So with Dell, we have a buyback, a turnaround under way, a beaten-down stock and some very smart investors in the name. That makes Dell a stock worth considering.
And finally, we have
Western Union(WU) rounding out this week's portfolio. The provider of money transfer and other financial services recently authorized $1 billion to repurchase shares, expanding an existing $300 million buyback plan.
Barron's last week posted a bullish piece on the stock, noting that "given the company's efficient global money-transfer business and growth opportunities," the stock could be poised for a 20% jump or more. The report quoted Timothy Call, manager at Richmond, Va.-based Capital Management, who said, "The value of these shares will become evident as Western Union consistently grows earnings at 20% annually -- in the anticipated slow-growth environment."
Adding to the bullish case for Western Union is that
Maverick Capital owns shares. This $10 billion hedge fund is run by Lee S. Ainslie III, a protégé of Julian Robertson at the legendary Tiger Management fund. Maverick also owns positions in
Union Pacific(UNP) and
Qualcomm(QCOM).
We also like to see that highly respected investor
D.E. Shaw is also a believer in Western Union. The global investment firm also owns shares of
Take-Two Interactive(TTWO) and
USG(USG).
So with Western Union, we have a large buyback, a solid outlook for 2008, a bullish piece from influential
Barron's, and two outstanding funds in the stock. It could be time to take a harder look at this stock.
To see the rest of this week's picks, check out Stockpickr's
Top 10 Insider Purchases and Buybacks portfolio.
You can also review
Barron's Top Insider Purchases from the prior week as well as Cramer's
"Mad Money" Buybacks.
