Two Stocks That Could Profit From Buybacks

Our recommendations at The Buyback Letter currently focus on a collection of five stocks that we believe, as a group, will outperform the market this month. So far, we have done well. Our Buyback Premium Portfolio is beating the S&P 500 by more than 68% since its inception (August 2, 2000). The portfolio is up 47.53% since inception versus a decline of 20.64% in the S&P 500 over the same time frame. For the month of September 2010, The Buyback Premium Portfolio gained 12.38% vs. a gain of 8.76% in the S&P 500. So what's our New Premium Portfolio Recommendation? On October 1, we issued a sell recommendation on two stocks Coach COH and Health Net HNT at market. Now, we recommended using the proceeds and available cash to buy equal dollar amounts of the following two stocks at market:Family Dollar (FDO) and American Financial Group AFG. Family Dollar: The tough economy has been kind to Family Dollar Stores FDO, as its deeply discounted merchandise (most of its goods are priced under $10), has attracted consumers struggling in a weak economy. Family Dollar has been in the news because it just posted fiscal fourth quarter earnings that beat analyst expectations. Profits were $74 million ($0.56 per share), compared to $60.1 million ($0.43 per share), in the same quarter last year. Revenue rose 8%, to $1.96 billion, on same-store sales growth of 6.1%. Family Dollar was on a roll for the full year, as well. Net income increased 26.6% to $2.62, compared with $2.07 for last year. Net income for the year increased 23.0% to $358.1 million compared with net income of $291.3 million in fiscal 2009. In addition, sales for fiscal 2010 were $7.9 billion, or 6.3% above sales of $7.401 billion for fiscal 2009. Sales in comparable stores increased 4.8%, due in part to higher customer traffic. The company said it expects good results for 2011 as well, with fiscal earnings for this year expected at of $2.95-$3.15 a share on a same-store sales increase of 5 to 7%. And if that weren't enough, Family Dollar authorized a new $750 million share repurchase plan, and announced longer store hours and a remodel to emphasize fast-moving items like food. Frugal customers will be happy with that! Family Dollar has reduced shares outstanding by 5.1% in the last 12 months. Continue reading the article.