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James Li
James Li
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Industrial Companies Showing Good Potential for 2017

A look at triple buys for 2016

January 04, 2017 | About:

Among U.S. companies, Hertz Global Holdings Inc. (NYSE:HTZ) and Aaron’s Inc. (NYSE:AAN) have high guru, insider and company buys during 2016. Such companies, known as “triple buys,” offer good value potential for early 2017.

Brief recap of double buys and introduction to triple buys

In a previous article, we explored double buys, companies that both gurus and insiders have purchased shares in during the past three to six months. The list of double buys includes Hertz, Jazz Pharmaceuticals PLC (NASDAQ:JAZZ) and Myriad Genetics Inc. (NASDAQ:MYGN). Among these three companies, Hertz is also a “triple buy” as the company had a positive one-year share buyback rate.

Hertz is the only triple buy during the past three months. However, when we considered the guru and insider trades from the past six months, the industrial sector had two triple buys. During the past 12 months, i.e., the year 2016, the industrial sector had 10 triple buys, the second-highest number of triple buys across the market sectors. The distribution of triple buys across the sectors for the past six months and for the past 12 months is summarized in Figure 3 and Figure 4, respectively.

Figure 3

Figure 4

Aaron’s Inc. is a triple buy

Atlanta-based Aaron’s specializes in furniture and household retailing. The company’s primary products include TVs, mattresses, washers, dryers and refrigerators. As of Jan. 4, Aaron’s has a financial strength rank of 7 and a profitability rank of 8, both suggesting a strong business operation.

The specialty furniture retailing company reported solid third-quarter 2016 results, including net earnings of $29.5 million and diluted earnings of 40 cents per share. The strong lease portfolio performance at Progressive Finance Holdings LLC, which increased revenues by 16% and expanded active doors by 28%, contributed to higher adjusted EBITDA margins during the quarter. CEO John Robinson further discussed how Progressive achieved “solid revenue growth with consistent profitability,” resulting in continued “value proposition for customers and retailers.”

Likely due to strong cash flows, the company repurchased $34.5 million shares of common stock during third-quarter 2016, yielding a three-year average share buyback rate of 1.4% as of Sept. 30, 2016. This buyback rate outperforms 88% of global rental and leasing companies.

Aaron’s has 11 net guru buys and four insider buys as the company offered good value potential throughout the past year. The company had at least a four-star predictability rank during 2016, and its financial strength and profitability seldom ranked below 7. Figure 5 summarizes the historical trend of Aaron’s financial strength, profitability and predictability rank during 2016.

Figure 5

A “quintuple buy”

GuruFocus offers several “premium” features on insiders, including insider cluster buys, CEO and chief financial officer buys, double buys and triple buys. Our statistical study on guru and insider buys discussed double buys and triple buys. However, we can take it a step further and discuss the “quintuple buy.”

As discussed in the research article, high net guru buys and insider buys offer positive signs for stock picks. However, if top executives like the CEO and chief financial officer also buy company shares, the number of positive signs increases to three or four. Thus, our study includes analysis on CEO double buys and CFO double buys, which are companies where gurus and top executives have bought shares in the past six or 12 months.

We define a “triple double buy” as a company that is a double buy, a CEO double buy and a CFO double buy at the same time. Such companies have four positive signals as gurus, insiders and top executives are all bullish on the company. Figure 6 summarizes the distribution of triple double buys across sectors during 2016.

Figure 6

If a company also repurchases shares, a “triple double buy” becomes a “quintuple buy,” i.e., the company has five positive signals. As illustrated in Figure 7, Aaron’s and four other industrial companies qualify as “quintuple buys” for the past 12 months.

Figure 7

Premium members have access to all of the above insider features, including triple buys. The premium membership also includes access to the All-in-one Guru Screener, over 150 gurus’ portfolios and the aggregated portfolio. Premium Plus members have additional access: portfolio information on over 4,000 institutions that file quarterly 13F reports to the Securities and Exchange Commission, backtesting for up to 10 years and the Manual of Stocks for all companies subscribed to. Please review the membership levels page for more details. If you are not a member, we invite you to a free seven-day trial.

Disclosure: The author has no position in the stocks mentioned in the article.

About the author:

James Li
I am an editorial assistant and researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

Visit James Li's Website


Rating: 3.0/5 (2 votes)

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Comments

Adamep
Adamep premium member - 2 months ago

Hi James,

Interesting article on insider buys, etc. I am a premium member and am wondering how can I learn the names of the other companies that are quintuple buys. Thanks for your help!

Best,

Adam P.

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