Share repurchase is an excellent tool to shore up share prices and the effect increases dramatically when an activist investor is involved. Navistar International Corp (NYSE:NAV), Smith & Wesson Holding Corp (NASDAQ:SWHC) and Suncor Energy Inc (NYSE: SU) (TSE:SU) are such stocks where the value is still to be unlocked.
Navistar International’s Investors Cut Deal
Navistar International Corp (NYSE:NAV) 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.
Relying On Old-Fashioned Stock Picking, Lee Ainslie Reports His “Strongest Quarter” Ever
Lee Ainslie's Maverick Fund USA enjoyed its "strongest quarter in the fund's history" during the three months to the end of June. According to a copy of the firm's second-quarter letter to investors, which ValueWalk has been able to review, Maverick Fund USA gained 18% in the second quarter. Following this performance, the fund was Read More
In Navistar International Corp (NYSE:NAV), the investors cut a deal with management in 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 Holding Corp (NASDAQ:SWHC) is a firearms manufacturer and its stock has gained more than 21 percent 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 percent 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 partially the management’s effort to boost earnings per share by repurchasing shares.
Last week, the company announced 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 to this stock which trade in an industry with limited competition. A forward price earnings ratio of 8.1 is an indication there is more upside room left in the stock.
Suncor Energy Climbing Up
Similarly, shares of Suncor Energy Inc (NYSE: SU) (TSE:SU) 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 September 19, 2013.
The company has also increased its quarterly dividend from 13 cents to 20 cents which works out an annualized yield of 2.5 percent. Both of these factors have proven to be great drivers for share price and are likely to contribute in 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.
Although all of these stocks have their own merits, the case appears to be exceptionally strong for Navistar International Corp (NYSE:NAV) and Suncor Energy Inc (NYSE: SU) (TSE:SU). Navistar is way off the mark from the levels of 2010 and improving fortunes of the company could send back the stock to higher levels. Suncor is a superb growth engine where lower cost structure for boosting production is the centre of attraction.