One of the primary goals of Stockpickr.com is to allow everyday investors a look at what the big guns are buying. Often times, we see a big-name investor loading up on a particular stock. This is usually a good sign because you know that person put a lot of time and due diligence into that process.
But when that same company announces that an insider has purchased a large chunk of stock or, even better, the board announces a new large share-buyback program, that usually seals the bullish case for the stock.
As Jim Cramer often points out, insider selling happens all the time for many different reasons, but insiders buy for only one reason: They think their stock is going higher.
That's why, each Thursday at Stockpickr we update the
portfolio, featuring stocks that have had either big insider purchases or newly announced buybacks as well as super investors accumulating shares.
makes this week's list. The Wisconsin-based retailer said it will repurchase $2.5 billion worth of common stock over the next three years. The company plans to finance the buyback from operating cash flow and debt.
Because the stock has plummeted some 25% in the past five months, the company believes an investment in its own shares will provide a substantial return. At the current share price, the buyback represents 13% of total outstanding shares.
On top of the buyback, Deutsche Bank reiterated its buy rating and $75 price target. The bank believes the repurchase plan will add to full-year 2007 and full-year 2008 earnings-per-share growth.
Along with Kohl's board, Deutsche Bank believes Kohl's is cheap and shows limited risk. The stock is trading at 12 times its new 2008 estimate. Limited risk comes from "housing-related softness" and "competitive pressure."
Although, historically, Kohl's has fended off competitors with recognizable brands like Simply Vera Wang, the Daisy Fuentes line of clothing, Ralph Lauren and Nike selling at affordable prices. Kohl's reputation for same-store sales increases and the new Tony Hawk brand and Food Network housewares division should add to investor confidence.
It's also good to see that a firm like
is a believer in Kohl's stock. The New York-based hedge fund's $5 billion Medallion Fund has averaged 35% annual returns, after fees, since 1989, yielding returns 10 percentage points higher than legendary investors
A couple of its new positions include
Bank of America
Another notable investment firm that owns Kohl's shares is Bill Nygren's
. Nygren, the portfolio manager of the Oakmark family of funds, was named Morningstar's Domestic-Stock Manager of the Year for 2001.
So with Kohl's we have a buyback, an analyst reiterating a buy rating, and two successful funds in the stock. It's time to take a closer look at the stock.
Next on the list is
. The Dallas-based chipmaker has decided to return more value to shareholders by adding another $5 billion to its buyback plan and raising its quarterly dividend 25% to 10 cents a share.
Since September 2004, the company's buyback program has grown to $20 billion, reducing outstanding shares by 17%. Texas Instruments did not give a time frame on the $8.8 billion remaining, but Jefferies analyst John Lau believes the company will buy $1 billion to $2 billion worth per quarter. On word of the buyback Friday, shares of the company, which also makes calculators and cell-phone chips, jumped more than 3%.
Last week, the company also said its third-quarter earnings would be at the higher end of its previous forecast of 46 cents to 52 cents a share. It mentioned the sale of a semiconductor product line added to profits.
Another positive for Texas Instruments is that Credit Suisse upgraded its rating to outperform, and increased its price target to $45 from $43. It believes the increased buyback, inflated dividend, higher EPS estimates and wider margins all will prove to be catalysts for the stock.
Right now, Texas Instruments shares are trading at 16 times earnings, and given the more stable outlook for the wireless segment, solid growth in the analog division and overall margin expansion, there's no reason why the stock should trade significantly below the four-year historical average of 21 times earnings. In order to reflect the lower share count, Credit Suisse said the new 2008 EPS estimate is $2.25 vs. the previous $2.17.
We're also pleased to see that
owns Texas Instruments. Soros, the founder of the Quantum Fund, is one of the most successful hedge fund investors ever. How he "smells out weakness" though goes one step beyond philosophy and into his own talent.
His son Jonathan says it best, "When my father's back hurt, he knew he was in a bad trade." George Soros' most recent investments include
is another noteworthy firm that owns Texas Instruments. This fund, which has a Morningstar rating of four stars and is run by Ajay Krishnan, invests primarily in science and technology companies.
So with Texas Instruments we have an increased buyback, beefed-up dividend, an upgrade including increased price target and two well-known investors in the stock. That's not a bad setup.
And finally, we have
Barnes & Noble
making this week's list. On Sept. 11, Leonard Riggio, the company's chairman, spent $3.3 million to buy 100,000 shares of Barnes & Noble stock at $32.95 apiece.
And almost exactly one month earlier, on Aug. 10, he purchased another 100,000 shares at $32.64 a piece for $3.2 million. This brings his total holdings to 13 million shares, or 20% of the company's total outstanding.
It is very interesting that he bought shares on those two particular dates. The fact that Riggio bought so many shares on Sept. 11 and Aug. 10 is telling, as they are the only two dates since March 2005 that the stock price has dipped into the $32 range. By spending $6.5 million on Barnes & Noble stock in one month, Riggio is telling us that Barnes and Noble at $32 is too cheap in his mind, and we should take advantage of the buying opportunity.
A report by JPMorgan suggests it's smart to follow the leader and buy when Len Riggio is buying. Historically, his purchases have been well-timed. Of his last five open-market transactions, the stock has rallied 32% on average. And, naturally, when he sells, the stock has underperformed. His back-to-back purchases are a signal the stock remains undervalued.
JPMorgan has an outperform rating on Barnes & Noble and set a modest price target of $35. The brokerage wrote, "In today's challenging consumer and retail market, we continue to prefer best of breed business models like Barnes and Noble." The firm is impressed by the bookseller's clean and cash-rich balance sheet.
That's all positive for Barnes & Noble, but it's also great to see a fund like
in the stock. Pershing Square Capital Management is a $300 million-plus activist hedge fund managed by Bill Ackman that has delivered 40%-plus returns over the past two years. Barnes & Noble makes up 7.1 % of the fund's portfolio. Other Pershing positions include
Another excellent firm in the stock is
, a $20 billion hedge fund founded by billionaire trader Ken Griffin. The large Chicago-based firm is known for its daily trading volume, which amounts to 1%-2% of daily trading activity in New York and Tokyo. From inception through 2006, Citadel Investment Group achieved an annualized net return of roughly 25%, making it one of the best-performing hedge funds within that period.
So with Barnes & Noble, we have a director buying shares on two occasions, an upgrade, and two prestigious funds into the stock. It may be time to take advantage of this cheap stock.
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 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
- Top 10 Insider Purchases and Buybacks XX
- Top 10 Insider Purchases and Buybacks XXI
- Top 10 Insider Purchases and Buybacks XXII.
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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