Top 10 Stocks With Big Insider Buying, Buybacks

Big repurchases make Coach and Tellabs stocks to watch.

Author:: James Altucher
Publish date:: Nov 15, 2007 5:59 AM EST

Part of the philosophy of Stockpickr is to follow in the footsteps of smart people. This could mean a few different things.

First, it could mean piggybacking great investors like Warren Buffett or George Soros. Other times it means buying what the CEOs, employees and directors of a company are buying. These are people who know the intimate details of their companies far better than you or me.

The perfect setup is when one of these company insiders or an entire board (in the case of a stock buyback) are buying shares at the same time that some smart savvy investors are as well.

Each Thursday we update the Stockpickr

Top 10 Insider Purchases and Buybacks

portfolio, featuring the stocks of the week that had either big insider purchases or newly announced buybacks as well as "smart money" accumulating shares.

Coach

(COH)

makes this week's portfolio. The New York-based designer of high-end handbags and other accessories said Friday its board approved a stock-buyback plan worth up to $1 billion.

The company, which plans to buy back the shares through June 2009, recently completed a $500 million repurchase plan authorized in October 2006.

On Oct. 23, Coach reported fiscal first-quarter earnings of 41 cents a share on net income of $155 million, 32% higher than the $115 million, or 31 cents a share, it posted in the same period last year. Even amid the weak retail industry, Coach saw a 28% surge in sales. The company increased its 2008 revenue expectations by 22%. Coach now forecasts earnings of $3.17 billion, or $2.06 a share.

Stacey Widlitz from Pali Research is bullish on Coach and reiterated a buy rating with a $60 price target, which represents a 66% premium compared to its latest closing price. Widlitz recommends taking advantage of the rare entry point into one of America's preeminent designer names, at a P/E of 15.2 (versus historic levels over 25x).

We also like to see that

Maverick Capital

owns Coach shares. This $10 billion hedge fund is run by Lee S. Ainslie III, a protégé of Julian Robertson at the legendary Tiger Management fund. Maverick also owns

Union Pacific

(UNP) - Get Report

and

Qualcomm

(QCOM) - Get Report

stock.

Another positive for Coach is that

Viking Global Investors

also owns the stock. The New York-based $3 billion long-short fund invests in U.S. and European companies.

So with Coach, we have a buyback, a reiterated buy rating with a huge price target jump, and two well-known investors in the stock. It may be time to take a closer look.

Next on the list is

Tellabs

(TLAB)

. The telecommunications equipment maker's board just approved a $600 million buyback plan, which, combined with the $176.1 million left over from a buyback plan authorized in July 2006, accounts for nearly 22% of Tellabs' total outstanding shares.

Since 2005, the Naperville, IL-based company has spent $513.9 million repurchasing 50.9 million shares.

The newly authorized repurchase also reduces the threat of a Tellabs takeover. In the past, the $3.7 billion company has been the subject of merger speculation. Among potential buyers, the most popular names to surface have been

Nortel Networks

(NT)

and Nokia Siemens Networks.

Last week Tellabs also announced that its chief executive, Krish Prabhu, will resign by March 1 and the board has already begun to look for a new replacement. This move comes after Tellabs announced a 93% drop in quarterly profit. As wireless companies in North America were forced to cut back on spending in the past quarter, Tellabs' earnings took a substantial hit.

However, JPMorgan analyst Ehud Gelblum doesn't believe Prabhu is to blame for the company's downfall, and in a

Reuter's

report Gelblum said Prabhu was "simply dealt a bad hand." Prabhu's loss is extremely detrimental to Tellabs and it will be difficult to find a replacement with the profile and experience of Prabhu.

Merriman Curhan Ford & Co. upgraded Tellabs to buy from neutral, noting that the significant share buyback and management changes will prove to be a positive catalyst for the company. The firm believes Tellabs could benefit most from exiting the access business and diving into a next-generation, IP-based platform.

It's also good to see that

Chapman Capital

is a believer in Tellabs. This $300 million activist fund, run by Bob Chapman, boasts a 20% annual return from 1996 to 2003. Chapman also owns

Sycamore Networks

(SCMR)

and

SunPower

(SPWR) - Get Report

Another notable investment firm into Tellabs is

Columbia Wanger Asset Management

, a $23 billion firm that also invests in

FMC Technologies

(FTI) - Get Report

and

Atwood Oceanics

(ATW)

So with Tellabs, we have a buyback, an upgrade, senior management changes on the way and two recognized investors into the stock. That makes Tellabs a stock worth considering.

And finally, we have

Brooks Automation

(BRKS) - Get Report

also on this week's list. The semiconductor equipment and materials producer said last Friday that its board authorized the repurchase of up to $200 million in common stock. With 70.4 million shares outstanding as of Sept. 30, the buyback will reduce outstanding common stock by about 22%.

Brooks last week also posted disappointing fourth-quarter earnings, uncharacteristic compared with an otherwise positive full-year fiscal 2007. Revenue in the fourth quarter dropped 10.9% while bookings sunk 10.5%.

However, the company reported full-year 2007 revenue of $743.3 million, a 22.4% increase from 2006. Full-year GAAP income from continuing operations soared to $54.3 million, or 73 cents a share, vs. $22.3 million, or 31 cents a share, in 2006, representing a 130% gain.

On a bullish note, Bear Stearns upgraded Brooks to outperform and lifted its price target to $17. Bear Stearns analyst Michael Winter admits there may be more difficult conditions ahead in the next few quarters, but he says long-term growth looks strong.

Winter believes BRKS will outgrow the industry based on, "greater OEM outsourcing of tool automation and manufacturing, share gain potential at

Applied Materials

(AMAT) - Get Report

, meaningful growth in service, and increasing traction within Japan."

It's also good to see that the likes of

Nierenberg Investment Management

believe in Brooks. Nierenberg Investments, a 6.4% holder of BRKS, is run by David Nierenberg and has returned over 20% for the past decade. The firm is also buying laser-based semiconductor device maker

Electro Scientific

(ESIO) - Get Report

and network solutions company

RadiSys

(RSYS) - Get Report

Mazama Capital Management

is another superstar fund that likes Brooks. Some of their other recent plays are communications equipment provider

Polycom

(PLCM)

and footwear maker

Crocs

(CROX) - Get Report

Brooks' long-term growth drivers, solid balance sheet ($3.75 net cash per share), $200 million buyback and raised price target create a nice set-up. And the fact that shares are currently trading at historically low levels at 1 times book and two prominent investors making a bullish bet add to the case.

To see the rest of this week's picks, check out Stockpickr's

Top 10 Insider Purchases and Buybacks

portfolio.

You can also review

Barron's Top Insider Purchases

from the prior week as well as Cramer's

"Mad Money" Buybacks

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

and

SuperCa$h

. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback;

click here

to send him an email.

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