The perfect setup for a stock in my mind? Insiders buying shares, the company buying back stock and a super-investor such as Warren Buffett also accumulating a position. If I can get three out of three, I'm in heaven, but even two out of three makes me happy, particularly if the stock is cheap in other ways as well.
This is why each week at Stockpickr we update the Top 10 Insider Purchases and Buybacks portfolio, featuring stocks that have seen either big insider purchases or newly announced buybacks, as well as super-investors accumulating shares.
Wells Fargo< (WFC) is in this week's portfolio. The San Francisco-based bank announced that it will add 25 million shares to its buyback plan to meet the requirements of its employees' benefit plans. Last November the company announced a 75 million-share repurchase plan, and as of June 30, 2008, 24.4 million shares remained available for repurchase.
Wells Fargo added: "The Company maintains a variety of retirement plans for its team members and typically is a net issuer of shares of common stock to these plans. From time to time it also purchases shares of common stock from these plans to accommodate team member preferences. Share repurchases are subtracted from the Company's repurchase authority without offset for share issuances."
The company has about 3.3 billion shares outstanding. In other news, Wells Fargo said that it is lowering its prime rate from 5% to 4.5%, effective Oct. 8.
While the rest of the financial sector has been dismal since the beginning of the year, dropping 38%, Wells Fargo has remained fairly unscathed. Since Jan. 8, Wells Fargo shares have gained 5.73%. The company is also proud to announce that it is the only bank in the U.S., and only one of two banks worldwide, to receive the highest credit rating from Moody's, Aaa, as well as S&P's AAA.
After word that Wells Fargo would buy Wachovia (WB), Deutsche
Bank issued a bullish report on the news. The analysts said: "Wells Fargo gets a bank that we feel has emulated Wells Fargo and in one transaction adds a bank in the East with top market share with its bank that also has top market share in the West. The result is a cultural fit that is superior to that seen in other recent transactions." Deutsche has a hold rating on Wells, but it increased its price target 13.3% to $34 from $30.
Wells Fargo really stood out when we found out that it was Warren Buffet's favorite financial stock. Warren Buffet is the greatest investor alive, so it's a good idea to follow in his footsteps. He recently opened a position in NRG Energy (NRG) and one of his top stocks in this volatile market is Coca-Cola (KO)
It's also good to see that Renaissance Technologies is buying shares of Wells Fargo. This New York-based hedge fund was started by Jim Simmons in 1982. Its $5 billion Medallion Fund has averaged 38% annual returns, after fees, since 1989, and is considered in the industry to be the most successful hedge fund. Its other top plays are Wal-Mart (WMT) and Mosaic (MOS).
So we have a buyback, increased price targets and two of the most famous traders of all time buying shares. It might be time to add Wells Fargo to your portfolio.
Next on the list is 3Com Corp (COMS). The Marlborough, Mass.-based network equipment maker announced that its board approved the repurchase of up to $100 million in common stock. The plan is effective for one year, and the company has about 405.9 million common shares outstanding.
"As a Board, we are fully committed to increasing shareholder value and we believe this program is a positive step towards that objective," said Eric Benhamou, 3Com's chairman. "We made this decision after reviewing our current cash needs, as well as our current and projected financial performance, and determined this would be an appropriate use of a portion of our net cash balance."
On Sept. 22, the company reported solid first-quarter 2009 earnings. Revenue in the quarter jumped 7% from $319.4 million in 2008 to $342.7 million in 2009. Net income came in at $79.8 million, or 20 cents a share, up from a net loss of $18.7 million, or 5 cents a share, recorded in the same period last year. During the quarter, 3Com generated $39.3 million in cash, bringing the company's total cash and equivalents to $541.4 million.
Bob Mao, 3Com's CEO said: "In addition, we delivered our three key objectives in the quarter: solid year-over-year revenue growth, improved profit margins, including record gross margins again, and strong cash generation."
3Com also recently reported that it named Saar Gillai as the firm's new senior vice president of worldwide products and solutions. Gillai will help 3Com with research and development and sales departments to increase its product development.
Kaufman Bros. Equity Research, which views the buyback as another positive step for 3Com, commented: "The company has approximately $543 million in cash and $301 million in debt, for a net cash position of $242 million. Therefore, 3Com has the financial resources to support the program." The buyback could add 4 cents to 2009 EPS.
Kaufman has a hold rating and $3 price target on 3Com.
It's also good to see that the Citadel Investment Group holds 3Com in its portfolio. This $20 billion Chicago-based hedge fund was founded by billionaire trader Kenneth C. Griffin. From inception through 2006, Citadel Investment Group had achieved an annualized net return of approximately 25%, making it one of the best-performing hedge funds within that period. It is also putting its money in Kroger (KR) and AT&T (T).
Another top-notch firm that likes 3Com is the D.E. Shaw Group. Since its organization in 1988, the $50 billion firm has earned an international reputation for financial innovation and an extraordinarily distinguished staff. It also likes Exxon (XOM) and Johnson &
Johnson (JNJ).
So we have a buyback, solid earnings, a new executive and two superior investment firms buying shares. It might be time to do some more homework on 3Com.
And finally, we have General Dynamics (GD) making this week's list. The Falls Church, Va.-based defense contractor said its board approved the repurchase of up to 10 million common shares. The company has about 397.3 million shares outstanding.
The company reported strong second-quarter earnings as the Iraq war fueled robust sales of blast-proof trucks. Net income increased 25% to $641 million, or $1.60 a share, from $513 million, or $1.26 a share, in the same period last year. Sales jumped to $7.3 billion, an 11% gain, as demand for Gulfstream jets increased.
"General Dynamics' performance continued to be strong in the second quarter of 2008," said Nicholas D. Chabraja, chairman and CEO. "Sales, earnings and operating margins increased in all four business segments compared to the year-ago period, cash generation was exceptionally strong and the robust backlog suggests continued healthy demand for the products and services of each business area."
Chabraja continued: "Growth in the Aerospace backlog is a reflection of continued demand for the entire existing product line and extremely strong demand for the new Gulfstream G650. We are very pleased to see this interest in the new plane and view that as an indicator of Gulfstream's ability to anticipate and exceed its customers' product expectations."
Cowen was bullish on GD's recent acquisition of Jet Aviation. Analyst Cal Von Rumohr said: "Proposed acquisition of Jet Aviation for $2.25 billion (10x 2009E EBITDA) brings GD a complementary portfolio of services, global presence, & .trusted partner. image that should help GD sell its upper end business jets." He has an outperform rating on the stock.
Its also good to see that Atalanta Sosnoff Capital likes GD. This $5 billion private-investment company was founded by Chairman Martin T. Sosnoff. Sosnoff recently wrote an article about airline stocks where he says he thinks there could be a pop there over the next few years. His top stock picks are Goodrich Corp (GR) and Boeing (BA).
Another noteworthy firm that likes GD is Grantham Mayo Van Otterloo. The firm manages $127 billion (85% equities) in client assets using a blend of traditional judgments with innovative quantitative methods to find undervalued securities and markets. It also likes
Pfizer (PFE) and ConocoPhillips (COP).
So we have a buyback, great second quarter earnings, a profitable acquisition and two stellar investment firms buying shares. It may be time to do some more homework on GD.
Posted on Oct. 8, 2008
