Buy or Sell? Tuesday's Winners: EHTH, CALX, GFA


Among the biggest winners in Monday's early trading are eHealth (Nasdaq: EHTH), Calix (Nasdaq: CALX) and Gafisa ( GFA ) .

When a company announces a share buyback plan, the stock usually doesn't budge. That's because investors often assume that the buyback will simply offset thedilution associated with extremely generous stockoption grants to management. Yet on occasion you will find buyback plans with real teeth.  Online health insurer eHealth , for example, has managed to shrink its share count by a hefty 21% through several past buybacks.

That track record explains why investors are bidding this stock up roughly 5% this morning. A fresh $30 million buyback announcement Monday evening promises to shrink the share count another 10%. This stock got a huge lift in late June when the Supreme Court upheld most tenets of the Affordable Health Care Act. A push to bring an additional 30 million Americans intohealth insurance plans could give a major boost to eHealth. The fact thatshares pulled back a bit from that late June spike might explain why management is acting now.

This won't likely be eHealth's last buyback. The company has roughly $120 million ($6 a share) in cash and is generating nearly $20 million in annualfree cash flow . 

Calix's big buy
Buyback announcements can help boost a stock, and so can the moves of insiders. Case in point: A SEC filing of company director Donald Listwin's $161 million stock purchase of telecom equipment provider Calix is giving shares a decent boost this morning. 

Calix went public in early 2010 at about $15 a share, and despite expectations of strong growth that boosted the stock above $20 last summer, shares eventually slumped below $5 as it became apparent that sales are shrinking in 2012.

Perhaps a recent move to acquire some global assets from Sweden's Ericsson will help. Calyx had been deriving more than 90% of sales in the United States, and management realized that the opportunity to work with Ericsson may change that. "The agreement with Ericsson would provide Calix with (1) a foothold into potential Tier 1 accounts with the EDA 1500 GPON platform, which has been deployed by global Tier 1s such as Telefonica, Vodafone, AT&T, and Rostelecom in Russia, and (2) help in establishing an international presence via Ericsson's distribution channel in over 180 countries," note analysts at Goldman Sachs.

Investors have taken a wait-and-see approach to the Ericsson deal, and will only likely warm to the stock if it shows tangible signs of bearing fruit. The deal is expected to close in the fourth quarter. This week's insider buying aims to get the company on more radars before any real traction kicks in. 

Gafisa's comeback
In the investing business, timing is everything. And my April 2012 suggestion that investors check out Brazilian homebuilder Gafisa was surely a case of lousy timing. Shares had fallen from $18 in late 2010 to roughly $4.50, but after my look at the company, shares tumbled all the way down to $2 this summer. Investors buying in at that point would have been the beneficiary of great timing, as shares have quickly moved back up to $4. 

The most recent booster for this homebuilder, which is giving shares a 5% gain this morning, is the announcement that Gafisa may look to spin off its Alphaville division in anIPO or a sale. Gafisa took a majority stake in this urban housing developer in 2006, and it was a handsome investment, until the Brazilian housingmarket crashed.  U.S.real estate magnate Sam Zell, who has made a play for Gafisa on several occasions, is a possible buyer for the Alphaville unit. Gafisa's bankers are sure to reach out to him as they try to seek the highest possible valuation for Alphaville if it's sold rather than spun off.

Action to Take --> These shareholder-unlocking moves are more than just for show. Whether it is buybacks, insider buying or the possible sale of a key division, you need to pay attention to such moves, as they are often a harbinger of stockprice action to come. In these instances, eHealth, thanks to the looming health care changes, looks as if it could be soon making a an upward move (though management would like to complete that buyback before shares rally further). Gafisa is also quite intriguing, as the company still plays a key role in the Brazilian housing market, and shares could climb well higher if that market starts to turn the corner.

-- David Sterman

David Sterman does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.

This article appears in: Investing , Stocks

Referenced Stocks: CALX , EHTH , GFA

David Sterman

David Sterman

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