Activist Interest and Buybacks Make These Stocks Worth Buying
Jacob is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A share repurchase is an excellent tool to shore up share prices and the effect increases dramatically when an activist investor is involved. Navistar International (NYSE: NAV), Smith & Wesson (NASDAQ: SWHC) and Suncor Energy (NYSE: SU) are such stocks where value is still to be unlocked.
Navistar International’s investors strike deal
Navistar International is one of the oldest truck making companies still around in the United States. Although this company’s existence was threatened in recent years as a result of management misadventure that piled up millions in regulatory fines, Navistar seems to have got back on track, sealing deals to equip its products with industry leading technologies.
In terms of fundamental valuation metrics, there is little the stock offers except for some upbeat reviews from analysts. This turnaround has got some prominent investors such as Carl Icahn and Mark Rachesky interested in the company. Both are among the largest shareholders in the company and are known for their scathing reviews of management of the companies they have invested in.
In Navistar International, the investors cut a deal with management last October that allowed them to nominate one member each, in addition to a mutually agreed upon director. This arrangement has now been changed, allowing both investors to nominate two board members each. The announcement had a positive effect on the stock. In the last quarter alone, the stock has touched a high of $38 and a low of $26.5. There are potentially more such twists and turns in the stock from which investors can benefit.
Shot in the arm for Smith & Wesson
Springfield, Massachusetts-based Smith & Wesson is a firearms manufacturer and its stock has gained more than 21% over the last month or so. The company has been reporting strong earnings in recent years -- a trend that continued in the quarter ended April 2013 during which the company reported a 38% jump in sales to $178 million while net profit doubled to $25 million.
However, this is not the only reason behind the recent spike in share price. What has driven the stock is management’s effort to boost earnings per share by repurchasing shares.
Last week, the company announced that it will be buying back its common stock at $11 per share, up from the earlier offer of $10 per share. Of course, there is fundamental attractiveness in this stock which trades in an industry with limited competition. A forward price to earnings ratio of 8.1 is an indication that there is much more upside left in the stock. Management's buyback should give investors further confidence that this company is on the right footing.
Suncor Energy climbing up
Similarly, shares of Suncor Energy have been climbing on a multitude of factors which include rapidly improving financial performance and share buyback. The company’s biggest operations are based in Canada’s Athabasca oil sands, although it has some interest in crude oil and natural gas exploration and production, too.
The company has an active share repurchase program and bought back nearly $405 million in the first quarter of 2013. Recently, Suncor Energy received regulatory approval to buy back an additional $2 billion worth of its common shares by Sept. 19, 2013.
The company has also increased its quarterly dividend from $0.13 to $0.20, which works out to an annualized yield of 2.5%. Both of these factors have proven to be great drivers for share price and are likely to contribute in the future as well on the back of surging production.
From current production levels of 550,000 barrels per day, Suncor aims to add another 350,000 barrels per day by 2020 without incurring exorbitant capital costs. This could be a big boost to the top line without heavy expenses accompanying that extra revenue.
Foolish bottom line
Although all of these stocks have their own merits, the case appears to be exceptionally strong for Navistar International and Suncor Energy. Navistar is way off the mark from the levels of 2010 and improving fortunes of the company could send the stock back to higher levels. Suncor is a superb growth engine where lower cost structure for boosting production is the center of attraction.
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