There are two moves every investor should make at the end of
everyearnings season . First, look at companies that just announced
major stock buybacks, and second, look at companies where insiders
have been spending their own cash toload up on their company's
stock. Both of these actions can only take place afterearnings have
been released and as the "
quiet period
" ends.
I recently checked out the major buyback announcements and was
hard-pressed to find any deep value signals. Many companies appear
to be buying back stock even as theirshares trade near multi-year
highs, likely due to a lack of other uses of their
recently-generated cash. Insiders, on the other hand, are value
players, typically buying
shares
when they appear to be seriously undervalued, not simply because
the cash is burning a hole in their pocket.
1. Ultralife (Nasdaq:
ULBI
)
Long before the battery-powered hybrid car revolution arrived, this
company was trying to revolutionize the century-old traditional
battery industry. Heavy research and development (R&D )
spending (at what was then known as "Ultralife Batteries") led to a
great deal of investor hype leading shares to move above $20 in the
mid-1990s. Even though commercial demand proved lacking, the
company carved out a nice niche as a supplier to the U.S. military.
Yet in the past few years, the military contracts have started to
wane as well, and Ultralife is now on track to lose money for the
third straight year. An attempt to diversify away from the core
battery business and into a range of communications products used
in off-site satellite locations has helped keep revenue from
falling at an even faster clip. Still, shares now trade for less
than $5 as the company works to stem the red ink and reverse the
negative sales trends.
In a bid to change the company's fortunes, the board of directors
hired Michael Popielec to serve as the new CEO in December 2010. He
got off to a rough start. Quarterly sales had been in the $37-50
million range for six straight quarters before plunging to just $31
million in the first quarter of 2011, roughly $10 million below
analysts' forecasts.. Yet Popielec, who has extensive management
experience at
GE (NYSE:
GE
)
and other industrial firms, looks poised to deliver better results
in the quarters ahead. "The New CEO has acted quickly to put his
stamp on the company, and we believe there is a solid base to build
on," note analysts at Merriman Curhan. Popielec is already cutting
costs, employing lean manufacturing techniques he learned at GE and
elsewhere.
The analysts at Merriman Curhan think quarterly sales will rebound
back into the $40-45 million range, beginning with the current
quarter, thanks to an
uptick
in commercial sales. That is likely to help Ultralife move back
into the black. The company generated a $5.8 million operating loss
in the first quarter but could generate a cumulative $8 million
operating
profit
during the rest of 2011, according to the analysts. They see that
figure rising to $15 million for 2012.
This past week, Popielec purchased 30,000 shares with $120,000 of
his own money, likely to re-focus investor attention away from the
dismal first quarter. Four separate directors purchased a
collective 40,000 shares with their private funds earlier in the
week as well. Taken together, these purchases signify that
Ultralife may finally be on the road to recovery after a very
challenging stretch.
2. GM (NYSE:
GM
)
When Dan Akerson took the reins of GM last September, the company
was headed for a heavily-publicized
initial public offering (IPO)
. A few days after the deal was completed in mid-November, he
shelled out $500,000 to buy company stock. Though shares initially
surged, they eventually pulled back and now trade almost 10% below
their first-day closing price. Akerson is undeterred. He bought
another 5,000 shares in early March and, just last week, he
purchased an additional 30,000 shares for nearly $1 million.
The ongoing purchases are a bit curious. Akerson has accumulated a
great deal of wealth after leading a series of
Fortune 500
firms during the past 25 years. He made roughly $9 million last
year, and GM's board recently granted him another $1.3 million in
restricted stock. At this point, he doesn't need the money.
Instead, his insider buys appear simply to be a vote of confidence.
Some analysts agree with his bullishness Morgan Stanley, for
example, sees 50% upside (which
I've talked about before
.)
Indeed with crude oil slipping back below $100 per barrel, investor
sentiment may start to move back in GM's favor. The company
generates especially strong profits on its pickup trucks, sales of
which were dampened as oil recently surged past $110 a barrel.
Hopes for a rebound in truck sales are now the possible
catalyst
for GM's shares.
3. Opko Health (AMEX:
OPK
)
Lastly, Opko Health CEO Phil Frost keeps buying more stock, which
I first profiled in early March
. Since then, he's picked up almost 5 million more shares of this
biotech play. Some of those acquired shares were acquired when Opko
conducted a $100 million
secondary offering
in March. The proceeds are intended to help the company step up its
R&D efforts.
Opko, which is focusing on eye-related treatments, remains a
below-the-radar play, with little analyst coverage and few media
mentions. Presumably, Dr. Frost will eventually shed more light on
Opko's prospects, as he has a strong history of courting Wall
Street when he needs to, as he did with Ivax before the generic
drug maker was acquired by Teva Pharmaceuticals
(Nasdaq:
TEVA
)
for $7 billion in 2005.
Action to Take -->
Insiders can be a bit premature in their efforts, so these stocks
may languish for a bit longer. But over time, these insider signals
tend to pay off for investors, so it pays to heed their
actions.
-- David Sterman
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Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
