Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Texas Pacific Land Trust (TPL), EMC Corporation (EMC), NetApp Inc. (NTAP): Buybacks Mean Better Times Ahead for These Stocks

Markets are witnessing some selling pressure leading to a correction, owing to fears regarding the early phase out of quantitative easing. While this will likely set a cat among pigeons, investors can use the opportunity to get into solid plays at discounted prices. Texas Pacific Land Trust (NYSE:TPL), EMC Corporation (NYSE:EMC), and NetApp Inc. (NASDAQ:NTAP) are some such companies whose shares have come down a bit in recent days. Here is a closer look:

EMC Corporation (NYSE:EMC)

Texas Pacific business model simplified

Investors may find the business model of Texas Pacific Land Trust (NYSE:TPL) overly simplified and they are not wrong in assessing this. Texas Pacific is primarily engaged in the sale and lease of land owned by it which runs into approximately 920,000 acres in 18 counties in west Texas. In addition, the company also owns acreage across the Permian Basin region which forms the basis of any investor’s investment thesis in this company. Texas Pacific Land Trust (NYSE:TPL) earns oil and gas royalties from about 50% of its acreage which allows the company to continue with its regular stock buyback program.

While royalty revenue stream is very solid, the company keeps selling some of its land holdings as a strategic step which brings some degree of variance in overall revenue. Nevertheless, the company is a hugely profitable entity with operating and net profit margins of 87% and 61.5%, respectively, in the first quarter. This was despite the fact that revenue dropped 29.8% to $6.7 million, reflecting lower land sales partially offset by higher royalties. For obvious reasons, the trust is a debt free entity and even though its valuations are very high in traditional sense, earnings per share are likely to continue growing for a long period.

Beyond royalties

Massachusetts-based EMC Corporation (NYSE:EMC) offers information technology infrastructure solutions and services to companies. Its products include enterprise storage systems and software deployed in storage area networks. The stock has hardly moved over the last quarter as the gains were pared after the company’s first-quarter earnings disappointed investors.

EMC Corporation (NYSE:EMC) reported a 5.7% growth in revenue to $5.4 billion during the three months but profit dropped slightly to $580 million, sending the shares down. However, a spate of encouraging development has again revived the stock. Initiation of quarterly dividend is among these developments and so is the expansion of its share repurchase program.

The company increased the size of its buyback program to $6 billion, which will be carried out through 2015. EMC Corporation (NYSE:EMC) also intends to change its capital structure to include more debt without affecting its strong investment grade profile. This will be beneficial in taking advantage of lower interest rates as its debt equity ratio currently stands at a mere 0.07. Forward price earnings multiple of 11.8 indicates the stock is not expensive.

NetApp’s attractive valuation

Similarly, NetApp Inc. (NASDAQ:NTAP) is a solid play available at an attractive valuation of 12.2 times its future earnings. The company’s latest quarterly results were ahead of Street expectations, following which analysts raised their target prices on the stock. NetApp had a net profit margin of 10.1% in the most recent quarter and a forward price earnings ratio of 12.2. NetApp Inc. (NASDAQ:NTAP)’s price target was raised to $45 from $39 by analysts at Piper Jaffray.

Another important factor in boosting the price target for the stock by analysts is the company’s bigger and aggressive share buyback plan. The company now plans to repurchase shares worth $3 billion over the next 12 months. On the profitability front, the decision to eliminate 900 jobs in coming months would help. This has been complemented with the newly implemented quarterly dividend of $0.15 per share. This flurry of shareholder friendly decisions, coming under pressure from activist shareholder Elliott Management, has the potential to take the stock higher.

Foolish bottom line

Overall, the companies represent a healthy variety of robust business models but given its simplicity and future earnings visibility, Texas Pacific Land Trust (NYSE:TPL) appears to be a good pick. EMC Corporation (NYSE:EMC) and  NetApp Inc. (NASDAQ:NTAP), while attractive, may witness a correction with wider markets.

Jacob Wolinsky has no position in any stocks mentioned. The Motley Fool owns shares of EMC.

The article Buybacks Mean Better Times Ahead for These Stocks originally appeared on Fool.com.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.