Among the biggest winners in Monday's early trading are
eHealth (Nasdaq: EHTH), Calix (Nasdaq: CALX)
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
, 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
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.
In the investing business, timing is everything. And my April 2012
suggestion that investors
check out Brazilian homebuilder
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.