I am not much for market watching.

Over the years, I have learned that watching the minute-to-minute and day-to-day gyrations of the stock market is a colossal waste of my time. Attempting to execute short-term trades to squeeze profits from the psychological soup in the intraday stock market is usually a fool’s errand.

I know a handful of people who can do it. They have advanced math and physics degrees and a stunning amount of computing power. I also know the formulas for short-term stat arbitrage strategies. I could execute them flawlessly if I had access to seven-figure credit lines and an electronic trading feed wired directly into the exchanges.

I have neither the computing power nor the credit lines.

But when I look at the very best long-term track records, the list is dominated by stock pickers, some of whom use moderate amounts of leverage.

They make money looking for opportunities like this one…

Not only do I not have the supercomputers or the credit lines to be a day-trader, I also haven’t found any evidence that the vast majority of those who do master the intricacies of short-term trading earn a long-term return above what you could get by buying cheap stocks of companies undergoing corporate events that could provide a catalyst for stock price improvement.

But digging for those special situations that Wall Street overlooks has, more often than not, provided me, and those who follow me, with the opportunity for profits that equal or exceed those of the frenzied short-term traders.

Companies that are off Wall Street’s radar screen actively buying back stock can often be a source of significant profits.

Liberty Energy Inc. (LBRT) is an excellent example of just such a company. Odds are you have never heard of the Denver-based oil and gas equipment company. The company has a market cap of less than $3 billion and is not exactly a household name.

Liberty Energy is a leader in providing fracking services and equipment with lower carbon emissions, which are more efficient than traditional fracking techniques.

The company recently reported earnings for the fourth quarter and full year of 2022: its best earnings since opening its doors back in 2011. CEO Christopher Wright told shareholders in the release that his team has so much faith in their continued ability to grow earnings and cash flows that Liberty was doubling its planned buyback program, to $500 million.

Currently, there is $375 million worth of stock left to buy back under the current plan.

Liberty also reinstated its quarterly dividend in the fourth quarter of 2022, and the shares now yield 1.29%.

In the second half of 2022, Liberty returned $134 million to shareholders via buybacks and dividends, which should be much higher in 2023.

The stock is trading at just seven times earnings, and analysts are expecting a huge earnings increase in 2023. The consensus Wall Street price target is $28, an almost-50% increase from its current price.

Another stock that has hit my radar screen because of buybacks is a little better known. Under Armour Inc. (UA) is a Baltimore-based athletic wear company that has experienced a great deal of success. The stock was a Wall Street darling for a long time but has fallen out of favor more recently as its growth has slowed over the past few years, taking it from the apparel stock everyone loved to a company with no following at all from the Wall Street analyst community.

The company is looking for weakness in consumer sales in 2023 as the Federal Reserve’s interest rate increases cause the economy to weaken.

Under Armour recently announced that Stephanie Linnartz, the President of Marriott International Inc. (MAR), will be taking over as CEO and President as of February 23, 2023.

A successful turnaround of the company that matches the earnings level it reached back in 2018 could lead to a tripling of the stock price based on price-to-earnings (P/E) ratio that matched the overall current market valuation.

Under Armour has completed $425 million of the $500 million stock buyback it announced last February. If management finishes the current plan at a depressed price and convinces the board to institute a new repurchase plan, I would take that as a significant indication that they believe the turnaround is achievable in a reasonable time frame.

Tracking share buybacks by companies Wall Street is ignoring can often uncover deeply undervalued stocks with the potential to give patient-aggressive investors massive returns.

— Tim Melvin

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Source: Investors Alley