Part of the philosophy of Stockpickr is to follow in the footsteps of smart people. This could mean a few different things.
It could mean piggybacking great investors such as Warren Buffett or George Soros. Or it could mean 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.
Every week, we update the Stockpickr Top 10 Insider Purchases and Buybacks portfolio, featuring the stocks that had either big insider purchases or newly announced buybacks that week, as well as "smart money" accumulating shares.
For instance, Corning (GLW) is in this week's portfolio. The largest producer of glass for LCD TVs and computers announced a new $1 billion buyback plan, representing about 3% of its outstanding stock. This plan comes on top of its previously authorized $500 million buyback plan, of which $125 million remain, bringing the total repurchase amount to $1.125 billion. The stocks will be repurchased from time to time depending on market conditions by the end of 2009.
Wendell P. Weeks, chairman and CEO commented: "This decision is consistent with our strategy to use free cash flow first to protect our financial health and second to fund growth opportunities."
Last Wednesday, July 30, the Corning, N.Y.-based company reported impressive second-quarter earnings. Net income surged to $3.2 billion, or $2.01 a share, from $489 million, or 30 cents a share, in the same period last year. Without the $2.43 billion tax-related gain, profit came in at 49 cents a share, an increase of 63% and in line with expectations.
Totals sales jumped 19% to 1.69 billion from $1.42 billion last year, coming up a little short of the $1.72 forecast.
Despite economic pressures, U.S. sales of LCD TVs were strong, up more than 30% this first half of the year and expected to grow in the range of 25% to 30% in the remainder of the year. "We expect the total year to still come in where we thought it would," added Weeks.
Corning estimates that 105 million LCD TVs will be sold in 2008, forcing its glass business to grow at the upper end of its original guidance range.
Corning expects third-quarter profit to be in the range of 48 cents to 51 cents a share, representing 26% to 34% growth year over year. Sales are expected to grow by 6% to 11%, to $1.65 billion to $1.72 billion. However, Wall Street was looking for sales of $1.79 billion.
After evaluating Corning's second-quarter results, analysts at Deutsche Bank reiterated their optimistic outlook with a buy rating. They believe the downside risk in Corning is already priced into the stock. The analysts explained: "Trading at 11x our below consensus EPS estimate (which assumes 15% glass volume growth in 2009 vs GLW's guidance of 20-25%), we believe shares are attractively valued for longer-term investors who can ride out another 5 months of cautious anecdotes about demand and downward earnings revisions."
We were happy to see that Leon Cooperman is picking up Corning shares for his portfolio. Cooperman founded Omega Advisors, a $4.5 billion hedge fund based in New York City. Prior to starting Omega, Cooperman spent 25 years at Goldman Sachs, where he was a general -artner, and chairman and CEO of Goldman's Asset Management division. His other top picks are 3M (MMM) and WellPoint (WLP).
It's also good to see that the hedge fund arm of The Blackstone Group, Blackstone Kailix Advisors, owns Corning. The fund recently opened new positions in Allegheny Technologies (ATI) and Zimmer Holdings (ZHM).
So we have a buyback, solid earnings, a buy rating and two noteworthy firms into the stock. It might be time to do some more homework on Corning.
Next on the list is Alliance Data (ADS). The Dallas-based marketing and transaction services company announced a new $1.3 billion buyback plan. This program is in addition to the company's previously announced $500 million repurchase plan, bringing the total authorized repurchase amount up to $1.8 billion. The repurchases will be completed before the end of 2009.
Since the beginning of the year, Alliance Data has repurchased about 12 million shares, worth $725 million, or roughly 15% of outstanding shares.
Ed Heffernan, the company's CFO, said: "We believe we have a unique opportunity to use both the low existing leverage of the Company as well as its high free cash flow generation to potentially repurchase as much as 35-40 percent of our existing share base at attractive prices."
For the second-quarter ended June 30, ADS reported a 6% gain in profit. Net income rose to $46.9 million, or 60 cents a share, from $44.1 million, or 55 cents a share, in the same period last year. Revenue jumped to $507.2 million from $481.8 million, an increase of 5%.
Since the company outperformed estimates in the first six months of the year, it had to increase its expectations for the full year. Alliance Data now expects to earn $4.35 a share for the full-year 2008, up from $4.30 a share. Analysts polled by Thomson Financial are anticipating earnings of $4.31 a share.
SunTrust Robinson Humphrey remains bullish on Alliance Data. Analysts at the firm reiterated their buy rating on the stock and inflated their price target by $10 to $75. They recommend Alliance because the company offers a competitive advantage in its analytics-based targeted marketing and loyalty solutions, which should provide above-average organic revenue growth. They were also positive on the enlarged buyback plan, which could add 15 cents to 20 cents to 2009 EPS and 2% to 3% to FCF/share.
It's also good to see that Renaissance Technologies is buying shares of Alliance Data. This $5 billion NY-based hedge fund has averaged 38% annual returns, after fees, since 1989 and is considered in the industry to be the most successful hedge fund. It is also buying Kellogg (K) and GlaxoSmithKline (GSK).
Another top-notch investment firm that likes Alliance is the DE Shaw Group. The $50 billion firm has earned an international reputation for financial innovation and an extraordinarily distinguished staff. In its portfolio, you'll also find UPS (UPS) and Microsoft (MSFT).
So we have an enlarged buyback, impressive earnings, a buy rating with increased targets and two astoundingly successful investment firms into the stock. It might be time to take a deeper look into Alliance Data.
And finally, we have Sun Microsystems (JAVA) making this week's list. The Santa Carla, Calif.-based maker of networking systems announced that its board approved the buyback of up to $1 billion in common stock. This plan comes in addition to the $3 billion program that was announced in the fourth quarter of 2007. Under this plan, about $37 million remain. The company added that the repurchases will be made from time to time and have no expiration date.
Jonathan Schwartz, CEO of Sun Microsystems, said: "With $3.3 billion in cash and marketable debt securities, we have maintained a strong balance sheet and feel confident that this program will allow us to further pursue strategic opportunities for growth."
The buyback was announced with Sun's disappointing fourth-quarter earnings. During the quarter, profit dropped 73% to $88 million, or 11 cents a share, down from $329 million, or 36 cents a share, in the same period last year. Analysts were expecting 27 cents a share. Quarterly revenue came in at $3.78 billion, vs. $3.84 bill in the year-ago period.
After the company forecasted a "slight" sales decline in the first quarter and hinted that it wouldn't make a profit, shares plunged 13%. Sun Micro noted that economic pressures and restructuring changes will continue to hurt its bottom line.
We like to see that Dodge & Cox owns Sun Micro shares. This San Francisco-based $100 billion firm has posted an annual average return of 14.47% over the past 10 years, easily outperforming the S&P 500. Its other top picks are Novartis (NVS) and Schlumberger (SLB).
Another superior fund into Sun Micro is Appaloosa Management. Appaloosa has averaged 30% or more annual returns since its inception in 1993. In 2003, it earned 150% alone. These returns and its $4 billion under management has placed founder David Tepper, a former Goldman Sachs trader, among the 50 richest men in America with a fortune estimated around $2 billion. He also likes Applied Materials (AMAT) and United Technologies (UTX).
So we have a buyback and two noteworthy investors into the stock. Nevertheless, this may be a stock investors should stay away from in the short term.
For more stocks and analysis, check out this week's Top 10 Insider Purchases and Buybacks portfolio at Stockpickr.com.
For the 10 most-recent portfolios, check out:
Top 10 Insider Purchases and Buybacks LIII
Top 10 Insider Purchases and Buybacks LIV
Top 10 Insider Purchases and Buybacks LV
Top 10 Insider Purchases and Buybacks LVI
Top 10 Insider Purchases and Buybacks LVII
Top 10 Insider Purchases and Buybacks LVIII
Top 10 Insider Purchases and Buybacks LIX
Top 10 Insider Purchases and Buybacks LX
Top 10 Insider Purchases and Buybacks LXI
Top 10 Insider Purchases and Buybacks LXII
You can also review Barron's Top Insider Purchases from the prior week and Jim Cramer's "Mad Money" Buybacks.
A note from James Altucher:
Every weekend I send an email to Jim Cramer and several hedge fund managers about the most interesting portfolios posted on Stockpickr that week. Usually those portfolios not only list stocks according to a theme but also offer significant analysis as to why the stocks are cheap.
Here are some examples:
Stocks related to drilling the Marcellus Shale
Microcaps trading for less than tangible book
Stocks that do well after Hurricanes
Here's the challenge: Build a portfolio at Stockpickr.com with great analysis, and send me the link. Each great portfolio (with analysis) will get posted on TheStreet.com with your byline (as a "Stockpickr Guest Columnist") and will be included in my email I send to Jim and the other
hedge fund managers on my list.
Posted on Aug. 6, 2008
