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Top Stocks With Insider Buying, Buybacks

James Altucher

04/03/08 - 11:59 AM EDT
Updated from 7:01 a.m. EDT

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.

CSX (CSX Quote) makes this week's portfolio. The Jacksonville, Fla.-based railroad operator recently initiated a new $2.4 billion stock-buyback program on March 17, upping its total stock-repurchasing capacity to $3 billion. This new buyback, which CSX expects to complete by the end of 2009, represents the power to repurchase about 15% of the company.

The rail transportation giant also said that it expects first-quarter and full-year earnings above Wall Street's expectations, citing strong pricing and improved efficiency. The company said it expects a profit of 74 to 77 cents a share for the first quarter and $3.40 to $3.60 a share for the year. This would trump analyst per-share earnings estimates of $3.05 for the year. The company also noted that it foresees 18% to 21% annual growth through 2010 vs. its previous estimate of 15% to 17% growth.

Following the announced buyback and guidance, several analysts -- including Bear Stearns' Ed Wolfe and Longbow analyst Lee Klaskow -- upgraded the stock.

Wolfe increased his 2008 earnings estimate by 17% simply due to the increased confidence management has in its plan as well as improving conditions in the coal and metal sectors.

Longbow's Klaskow said, "Clearly CSX is operating on all cylinders ... We believe the company is successfully executing on its turnaround, and it appears to us management is over the hump."

We also find CSX interesting because Atticus Capital owns the stock. Atticus Capital, a leading investment management firm with $13 billion of assets under management, also holds shares of Freeport-McMoRan (FCX Quote) and MasterCard(MA Quote).

Carl Icahn is another noteworthy investor in CSX. The activist investor has stepped up his stock-picking of late and recently won a battle with Motorola (MOT Quote). He also has a large position in Biogen Idec (BIIB Quote).

CSX has been involved in some vicious battles with a few different activist funds that are looking to replace CEO Michael Ward and also gain more clout on the board of directors. Ward spoke with our own Jim Cramer in late March and pointed out that CSX is near the top of both its industry and the S&P 500. He said, "I think all our shareholders are going to be well rewarded over time."

Cramer followed that up with, "I have 499 CEOs in the S&P 500 that I would get rid of before this guy." Given the recent upward guidance, the solid buyback plan in place, and the savvy investors in the stock, Cramer and the CEO do have a good point.

Next on the list is Baxter International (BAX Quote). The health care giant on March 18 approved a new $2 billion stock-buyback plan to launch after the completion of the existing $2 billion program it launched in March 2007, which has less than $700 million remaining.

JP Morgan analyst Michael Weinstein reiterated his overweight rating on the stock. He said free cash flow would be up more than 20% in 2008 and the company is on solid financial footing right now. He expects that the company will increase its dividend and also look to be a player on the M&A market.

Fitch Ratings also reaffirmed its outlook on Baxter, noting that "Baxter will continue to improve profitability through improved product mix, continued cost controls and new product introductions."

It's also good to see the likes of Maverick Capital is invested in Baxter. This $10 billion hedge fund also holds positions in Union Pacific (UNP Quote) and Qualcomm (QCOM Quote).

Another reason we like Baxter is because Navellier & Associates believes in the company. The $4.5 billion fund, run by Louis Navellier, also holds shares of Lockheed Martin (LMT Quote) and Apple (AAPL Quote).

So with Baxter, we have a large buyback, a solid 2008 outlook and a well-known investor in the stock. That makes this stock a play worth considering.

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.

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