Fried's Favorites Buybacks
02/27/2004 12:00 am EST
The Buyback Letter is the only newsletter to base its decisions on share repurchases. Notes editor David Fried, "When companies buy back their own stock, it's an enormous vote of confidence by those who know it best." Here are some of his latest favorites.
"We added Cendant Corp. (CD NYSE) to our portfolio last September, and it has since gained 20%. However the best may be yet to come. The owner of Avis Car Rental, Days Inn, and Century 21 recently posted a larger quarterly profit and reiterated its forecast for earnings growth of 10% to 15% in 2004. In February, Cendant declared its first-ever quarterly cash dividend (providing a yield of 1.2%), and said it may buy back an additional $750 million of common stock. An increased stock repurchase authorization will permit a buyback of shares expected to be issued once holders of some Cendant convertible bonds convert those bonds into stock. Additionally, the company agreed to buy Sotheby's International Realty residential real estate brokerage operations for about $100 million. If you've not added CD to your portfolio, feel free to do so at this time. We feel Cendant has more upside to come."
In addition, The Buyback Letter is also featured in a "stock pick of the week" from Forbes: "David Fried recommends buying shares of Seattle-based Washington Mutual (WM NYSE), the largest savings and loan ($275 billion in assets) and one of the largest mortgage lenders in the US. For the year ended Dec. 2003, net income was $4.21 a share, versus $4.02 in 2002. Fourth quarter earnings were off 11% from a year earlier, amid a 42% decrease in home lending and higher mortgage rates. Fried's outlook on Washington Mutual is bullish, due in part to the company's stock buyback program, which resulted in a 5% reduction in shares outstanding over the last year. A value investor, Fried is also encouraged by the stock's historically high dividend yield of 3.8%. It is also priced at a discount to its competitors, trading at 10.8 times 2003 earnings, with a PEG (price-to-earnings growth) ratio of 0.86. In addition, management has raised the dividend for each of the last 32 quarters."