Top 10 Stocks With Big Insider Buying, Buybacks
James Altucher
02/28/08 - 11:48 AM EST
Updated from 6:30 a.m. EST
At Stockpickr.com, we strive to keep track of insider purchasing 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 buying shares. 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 recently have seen big insider purchases or new buyback programs as well as super investors accumulating shares.
The Cheesecake Factory CAKE makes this week's portfolio. The casual-restaurant chain recently increased its stock-buyback plan by 10 million shares. The increase gives the Calabasas Hills, Calf.-based company the capability to repurchase some 17.5 million shares.
In order to finance the planned buybacks, the company said it will tap between $80 million and $90 million in free cash flow it expects to generate in 2008. The company, which operates 139 restaurants, is also negotiating a deal with its lenders to increase its credit line by $50 million to $100 million to fund the buyback.
On Feb. 5, Cheesecake Factory posted fourth-quarter earnings of 22 cents a share, missing Wall Street estimates by 4 cents. Revenue for the quarter rose 13% to $406.3 million but fell short of the $413 million analyst forecast. The company said bad weather conditions resulted in lower-than-expected restaurant traffic, which severely hurt same-store sales.
Analyst Greg Ruedy from Stephens Investment Bankers considers The Cheesecake Factory a "best-of-breed" casual dining operator and maintains his overweight rating on the stock. Since the company missed fourth-quarter expectations, he admits the company is not immune to the challenges in the consumer and commodity environment, but he feels its 2008 business strategy will help. Cheesecake Factory decreased the number of planned restaurant openings in 2008, with plans to invest the extra cash flow in share repurchases.
It's also good to see that a highly regarded investor like
Robert Olstein is a believer in CAKE stock. His
Olstein Financial Alert Fund OFALX also holds
Tyco TYC and
Apple AAPL shares.
Level Global is another noteworthy investor that invests in Cheesecake Factory shares. Its principals, David Ganek and Anthony Chiasson, came out of SAC Capital Advisors. The fund also owns shares of
Baidu BIDU and
National Oilwell Varco NOV.
So with Cheesecake Factory, we have a buyback, an analyst who considers the company "best-of-breed" and two well-known investors in the stock. That makes CAKE a stock worth considering.
Next on the list is
Stryker SYK, a medical device company that announced one of the largest buybacks last week. The company's board authorized a $750 million stock-repurchase plan.
The Kalamazoo, Mich.-based company, which specializes in orthopedics, on Jan. 23 posted spectacular quarterly and year-end results. In the fourth quarter, the company earned $278 million, or 66 cents a share, a 21.8% jump from the same period last year. Net sales increased 18.4% to $1.66 billion in the quarter.
For the full year, net earnings increased 30.8% to $1.02 billion and EPS increased 29% to $2.44 a share. Net sales were $6 billion, representing a 17% increase over 2006.
The shining star among Stryker's results was its MedSurg Equipment segment, which makes a variety of products including medical and surgical beds. Worldwide sales of MedSurg were $686.6 million for the fourth quarter and $2.42 billion for the year, representing increases of 21% and 19%, respectively. For the past 16 straight quarters, MedSurg has grown at least 14% a year.
Bear Stearns analyst Raj Denhoy believes Stryker's strong fourth-quarter results build momentum as the stock enters 2008. With robust orthopedic sales in every area and MedSurg continuing to expand, he expects another year of 20% EPS growth in 2008. Denhoy maintains his outperform rating on the stock and added, "The balance in Stryker's portfolio and consistent financial discipline make it our top pick in large-cap orthopedics."
Another positive for Stryker is that
Atalanta Sosnoff Capital is betting on the stock. The private-investment management company, which has about $5 billion in assets under management, was founded by Martin Sosnoff. Its newest positions are mining company
Vale RIO and telecom giant
AT&T T.
We also like to see that
Grantham, Mayo, Van Otterloo & Co includes Stryker in its portfolio. The privately held global investment management firm, which manages $127 billion in client assets using a blend of traditional and innovative quantitative methods to find undervalued securities and markets, also holds shares of
Pfizer PFE and
Home Depot HD.
So with Stryker we have a buyback on top of a great quarter, an outperform rating, as well as two well-known investors in the stock. That's a pretty good scenario.
And finally, we have
Cypress Semiconductor CY. The chipmaker's board authorized the company to add $300 million to its buyback plan, doubling the size of the program to $600 million.
Cypress on Jan. 24 reported fourth-quarter and full-year earnings, results of which were a mixed bag. The company reported earnings of 24 cents a share, which was just short of guidance in the range of 26 to 28 cents a share. Cypress CEO T.J. Rodgers blamed the weak quarter on an industrywide consumer-segment slowdown.
On a positive note, revenue came in at a record $1.6 billion, up 46% from 2006 revenue of $1.09 billion. Fiscal year 2007 EPS increased 60.8% to 82 cents, compared with 51 cents in 2006. Management expects the normal first-quarter softness; however, they also anticipate record revenue again in 2008.
Rodgers added, "Cypress remained nicely profitable in a softening semiconductor market in the fourth quarter with non-GAAP semiconductor gross margin reaching 48.8%. Our balance sheet contains not only $1.56 billion in cash and equivalents, but a 90% controlling voting stake in
SunPower SPWR. It will provide many opportunities for us to drive shareholder value in 2008 and beyond."
Suji de Silva from Kaufman Bros Equity Research remains positive on Cypress' stock, "Our core thesis of secular mix and restructuring improvement remains intact, despite the weaker fundamental outlook, and we continue to see a potential divestiture of the SPWR stake as a potential catalyst for the name. We maintain our buy rating, reflecting the significant upside in Cypress's core semi business."
We also like a see that hedge fund
Third Point holds Cypress stock. The $5.5 billion fund, founded in 1995 by Daniel Loeb, focuses on activist investing. It also invests in
NYSE Euronext NYX and
Mirant MIR stock.
It's also good to see that
D. E. Shaw owns Cypress stock. The $25 billion investment firm takes a global approach with its investments. It also holds shares of global video-game publisher who rocketed 55% this Tuesday,
Take-Two Interactive TTWO and biotech company
Biogen Idec BIIB.
So with Cypress we have a buyback, decent earnings, a buy rating, and two well-known investors in the stock. It might be time to take a closer look at this chipmaker.
For more stocks and analysis, check out this week's
Top 10 Insider Purchases and Buybacks at Stockpickr.com.
For the 10 most recent portfolios, check out:
You can also review
Barron's Top Insider Purchases from the prior week as well as Cramer's
"Mad Money" Buybacks.
