Dykstra: Ride Forest Labs' Confidence

As the unofficial end to the summer approaches, the stock market's roller-coaster ride continues.

Clearly, significant amounts of money have left the markets over the past few weeks. It remains to be seen whether that money will return to equities, so we need to keep our focus on strategic investments in very specific and strong sectors of the economy.

Today's selection, Forest Laboratories FRX, recently announced an expanded share-repurchase program. Forest focuses on developing and producing branded and generic forms of pharmaceutical products.

At its close Friday of $37.91, it is trading just above its 52-week low. However, the share-buyback program makes this an opportune time for using deep in-the-money options with Forest Laboratories.

Share-buyback programs indicate management's confidence in the company, providing a ready buyer of the company's shares should demand dry up. Furthermore, buybacks protect against a further devalued share price. When a company's management buys more shares, it indicates a high level of confidence in the direction of the share price.

Management buys more shares when it believes the stock's price is too cheap. Considering the position of management to assess the corporation's strengths, buyback programs should always indicate an opportunity for investors.

Forest's management is buying an additional 35 million of the company's shares, because at its present value, Forest is a great investment.