While it's always great to see a company report strong earnings or confirm or raise guidance, in today's climate, that isn't always enough. We also like to see either insiders or company boards themselves put their own money on the line as well. When we see all of this coming together at the same time is when we feel there is an excellent buying opportunity.
This is why each Thursday at Stockpickr we update the
portfolio, featuring stocks that have seen recent big insider purchases or newly announced buybacks as well as super investors accumulating shares.
( FTO) makes this week's portfolio. The Houston-based hydrocarbon refiner recently added $100 million to its existing $200 million buyback plan. Under the existing plan the company has repurchased $188 million, or 5.1 million shares, with about $10 million still remaining. The company expects to complete the new buyback plan along with the leftover shares by the end of 2007. And with $380 million in net cash, funding the increased buyback is easily affordable.
Last month, Frontier Oil impressed shareholders with the most profitable quarter in the company's history. It reported second-quarter net income of $243.8 million, or $2.23 a share, compared with net income of $145.9 million, or $1.29 a share, for the same period in 2006. Revenue jumped to $1.4 billion from $1.3 billion. Although one of its plants shut down for 30 days, more than 750 employees at their other facilities kicked it into high gear and produced record numbers, management said.
Analysts at Caris & Co. upgraded Frontier from average to above average. The exceptional second-quarter earnings caught their attention at first, but the equity research firm was also impressed by the solid margin and net cash growth. The firm believes Frontier is attractive at its current valuation and expects the exceptional earnings to continue.
Adding to the bullish case here,
owns Frontier. The New York-based hedge fund's $5 billion Medallion Fund has averaged 35% annual returns, after fees, since 1989 and is considered to be among the most successful hedge funds in the industry, yielding returns 10 percentage points higher than legendary investors
. The fund's other holdings include
So with Frontier Oil, we have a buyback, record earnings, an upgrade and a well-known investor in the stock. That builds a bullish case for this stock.
Next on the list is
, which recently added $200 million to its buyback plan, bringing the grand total to $270 million. The Internet service provider said the buyback will provide some support for the stock and limit risk for investors.
The company also announced plans to cut about 900 jobs, or nearly half its workforce, and shut down four offices, as the new chief executive Rolla Huff executes his restructuring strategies.
"We expect to announce additional steps as we continue our work over the coming weeks and months," Huff said in a statement. "While we recognize this is a difficult time for those affected individuals, this was a needed action for the company to better align our cost structure with our existing business," he added.
After the company announced its boosted buyback and restructuring plan, Jefferies & Co. issued a positive report on the company. It reiterated its buy rating with a $9.60 price target. Jefferies points out, "we view the announcement positively and believe that this and subsequent restructuring rounds will bring focus back to core business and on execution and increase profitability."
is a believer in EarthLink's stock as well. The $300 million fund, which is run by Bob Chapman, has agitated successfully for the restructuring or sale of more than 20 publicly traded companies over the past 10 years. Recent Chapman targets include
( ESPD) and
Another believer in EarthLink is
, a $4 billion activist hedge fund run by Warren Lichtenstein. The San Francisco-based fund strives to be either the largest or one of the largest stakeholders in a company allowing it to influence its direction.
With a driven CEO, analyst support, activist investors looking to shake things up and unlock value, EarthLink is poised to make a turnaround; it may be time to do some more homework and look into this stock.
And finally, we have
. The toymaker just boosted its buyback plan by $500 million. Since 2003 buybacks have been a key component to the company's investment strategy. It has repurchased 81.4 million shares worth $1.5 billion since the program started.
Recently, Mattel announced another major toy recall, in reaction to fears of lead-tainted toys harming children. It said Tuesday that 800,000 toys, some of which are the company's best-sellers, will be recalled.
Equity research firm Wedbush Morgan believes the recalls represent a buying opportunity. The latest recall is the direct result of rigorous testing and not the result of any incident involving consumers. The nature of the latest recall, of extremely small accessories to larger sets, shows that Mattel has done meticulous testing on even the smallest parts.
Furthermore, it appears subcontractors hired by Mattel's large vendors are to blame, and Mattel took the necessary steps and fired them. The extensive testing shows Mattel's commitment to consumer safety at any cost. Wedbush maintains a buy rating on Mattel and set a $32 price target. The valuation is right and all the recall problems seem to be in the clear.
Mattel shares are owned by one of the world's most successful funds, again,
. Another Mattel investor is
, a fund with a five-star rating from Morningstar. LSV Value Equity Fund invests primarily in common stocks of large and medium U.S. companies that are considered out of favor or undervalued in the marketplace. The fund also likes
So with Mattel, we have a buyback, recall problems coming to an end, analyst support and two top funds in the stock. This may be the perfect buying opportunity.
To see the rest of this week's picks, check out Stockpickr's
And to take a closer look at Stockpickr's Guide to Insider Purchases and Stock Buybacks, you can review the last few weeks' picks by checking out these portfolios:
- Top 10 Insider Purchases and Buybacks X,
- Top 10 Insider Purchases and Buybacks XI,
- Top 10 Insider Purchases and Buybacks XII,
- Top 10 Insider Purchases and Buybacks XIII,
- Top 10 Insider Purchases and Buybacks XIV,
- Top 10 Insider Purchases and Buybacks XV,
- Top 10 Insider Purchases and Buybacks XVI
- Top 10 Insider Purchases and Buybacks XVII
- Top 10 Insider Purchases and Buybacks XVIII
- Top 10 Insider Purchases and Buybacks XVIX.
You can also review
from the prior week as well as Cramer's
At the time of publication, Altucher and/or his fund had no positions in stocks mentioned, although positions may change at any time.
James Altucher is president of Stockpickr LLC, a wholly owned subsidiary of TheStreet.com and part of its network of Web properties, and a managing partner at Formula Capital, an alternative asset management firm that runs a fund of hedge funds. He is also a weekly columnist for
The Financial Times
and the author of
Trade Like a Hedge Fund
Trade Like Warren Buffett
. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback;
to send him an email.
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