Best Buybacks Bets

06/11/2004 12:00 am EST

Focus:

David Fried

Editor, The Buyback Letter

David Fried's Buyback Letter is the only service to focus on share buybacks as the foundation of its recommendations. His Premium Portfolio is up 100.72% since inception (August 2, 2000) vs. a 22.04% decline in the S&P 500. Here, he adds three new stocks.

"MGM Mirage (MGG NYSE) has just made a surprise $7.65 billion bid to buy rival Mandalay. If the blockbuster deal goes through–and it will require approval by the SEC and gambling regulators–it would make MGM Mirage the industry's top gambling company. The merger would allow MGM Mirage to dominate the Las Vegas Strip, with its portfolio of brands such as Bellagio, MGM Grand Las Vegas, The Mirage, Treasure Island, and New York-New York. The company is also a 50% owner of Borgata in Atlantic City. First quarter 2004 adjusted earnings from continuing operations per diluted share increased to an all-time record of $0.70, up from $0.38 in the 2003 quarter. In November 2003, the board of directors approved a new stock repurchase program for up to ten million shares. This was on top of a similar buyback program approved in February 2003. Over the past 12 months MGM has decreased its shares outstanding by 6.5%.

"The Ryland Group (RYL NYSE) is a homebuilder and a mortgage-finance company, which builds homes primarily for first-time buyers, as well as for move-up buyers and adults seeking retirement housing. For the first quarter of 2004, revenues increased 14% to $754.6 million. Net income increased 37% to $52.4 million. Revenues reflect an increase in average closing prices and closing volume. In January, Ryland announced that it anticipates full year 2004 earnings will exceed $10 per share, and then in April, raised that expectation to exceed $11 per share, citing record first-quarter new orders as the primary reason for its increased outlook. Ryland also has a robust buyback program. In January 2004 the company announced it would buy as many as 500,000 shares, and a month later, the board authorized the repurchase of an additional one million shares. Over the past 12 months Ryland has decreased its shares outstanding by 3.6%.

"Everyone has heard of Sears (S NYSE), and it’s a good bet that you have a personal relationship with the retailer, since Kenmore is the top-selling appliance brand in the US. In fact, one in every two homeowners owns a Kenmore appliance. Other Sears brands include Craftsman, the No. 1 brand of tool, DieHard, and Lands' End. The firm has nearly 900 full-line stores, and through its lending subsidiaries, is also the nation's number one credit provider among retailers, serving more than 60 million households. There are more than 48 million active Sears customer households, and Sears is the largest product repair service provider, with 14 million service calls made annually. In April, Sears announced a positive second-quarter outlook, anticipating earnings per share to be $0.78-$0.83, with earnings for the full year expected to be $3.60-$3.80. Over the past 12 months Sears has decreased its shares outstanding by a whopping 30.7%."

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