Buyback and payback. (Wall Street West).

Getting high marks from Hulbert's Financial Digest, the newsletter that ranks stock market newsletters, is Pacific Palisades-based Buyback Letter, a stock-picking outfit run by David Fried, once known to a previous generation of Angelenos for his clothing manufacturing company, branded "Sitting Pretty." Hulbert's ranked the Buyback Letter the No. 1 stock-picking service for risk-adjusted returns. That means Fried delivered good returns without a lot of volatility his portfolio of picks.

Fried tracks publicly held companies that announce, and then follow through on, plans to buy back their own shares.

It's the follow-through on buybacks that wins admirers. "A lot of companies announce the buybacks, but then don't execute. Don't invest in those stocks," he advises. In general, Fried likes stocks that are undervalued on the fundamentals; that is, they sell for lower price-earnings or other ratios than peer group stocks, or the market as a whole. In that scenario, the company executing a buyback is sincere in its estimation that the stock is, in fact, undervalued.

Last week, Fried made a new recommendation that investors shop for shares in Dayton, Ohio-based Rex Stores Inc., a retailer of electronic consumer goods that serves population centers too small to support national chains. Rex has a tax credit nearly equal to its market capitalization, buys goods on the cheap through second sales, owns real estate and has been buying back its own shares - 25 percent of the float in the last year. "This company would liquidate for more than what they are selling for on Wall Street right now," said Fried.

Contributing columnist Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. His new book is "The Pied Pipers of Wall Street: How Analysts Sell You Down the River," published by Bloomberg Press. He can be reached at [e-mail].