5 More Undervalued Stocks Getting Bought Back

Stock buybacks are generally considered a bullish signal on Wall Street. They announce management's belief that its stock is cheap, and that its own shares will provide its best return on investment. Like dividends, buybacks also let companies return capital to shareholders.

How buybacks work
Done right, share repurchases will increase earnings per share, so long as profits stay at least at the same level. A company with $1 million in earnings and 1 million shares outstanding will have EPS of $1. Now, if it buys back 250,000 shares, leaving only 750,000 shares outstanding -- and total profits remain $1 million -- its new EPS would be $1.33, or $1 million divided by 750,000.

We're seeking companies that have announced stock-buyback programs. Then we'll head over to Motley Fool CAPS to get some insight into the investing community's preferred picks. If companies announce stock buybacks, and CAPS' top investors endorse their future prospects, Fools should take notice.

Here are some of the latest companies to announce share repurchase programs.

The CAPS Advantage
Investors at CAPS are feeling pretty good about this selection of stocks announcing buyback programs, with three of the five companies earning top ratings of four and five stars. All of them are buying back sizeable chunks of stock -- even AMREP, whose half-million shares represents about 7.5% of its outstanding share capital.

Food distributor Sysco, a Motley Fool Income Investor recommendation, is the largest provider of food to restaurants, hotels, schools, and health-care facilities. It's been hard at work cooking up ways to increase shareholder value. In addition to the stock-buyback program it announced and its 2.3% dividend, Sysco shares have grown in value by about 19% from their low point last August. That made the stock a pricey little meal ticket, particularly when shares reached their highs of $37 at the end of last year. So at $32 a stub currently, they've obviously given up some of those gains, and while management believes its stock may be attractively priced, some think investors still ought to be very afraid of the price.

What do CAPS Fools think? All-Star CAPS investor nickbaes thinks Sysco is an example of "growth on the cheap":

At first glance it seems moderately priced for moderate growth. However, a big thing happened within the past quarter. They are unifying their many divisions (around 80 or so that have been separate) into 1 for purchasing power. This should allow them to increase margins ... possibly leading to a multiple expansion.

The company has a very high [return on equity], a massive revenue base that is growing steadily, and a very strong brand moat. Good management and company history of success.

A similar bullish sentiment can be found for flat-panel screen maker Corning. This best-of-breed stock with a five-star CAPS rating has been able to improve its financial picture as a result of heated demand for LCD televisions. The major credit agencies recently boosted their ratings of the company, and prospects look anything but flat.

Top CAPS All-Star TheGarcipian, whose CAPS rating is better than 99% of all other investors, thinks Corning is cheap by any number of metrics:

The financials for Corning look good as well. With a [price-to-earnings-to-growth ratio] of 1.13, forward [price-to-earnings ratio] of 16.6, profit/operating margins of 36.9% and 17.6%, [return on assets] = 10%, RoE = 28%, quarterly growth in [revenue] and EPS of 3.6% & 27.2%, a low debt/equity ratio of 19.4%, and a ratio of Assets/Liabilities of 2x, Corning Glassworks should continue to beat the S&P 500. Of [lesser] concerns are the low ownership of stock for insiders, and the small revenue growth. Hopefully, that will change with the retail sales of more glass products, particularly LCD screens and like products.

So what's your take on this group of companies buying back shares? Will Sysco continue to deliver the goods? Will Corning crack? You can share you opinion with thousands of your fellow investors.

Foolish fallout
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Legg Mason is a recommendation of Motley Fool Inside Value.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.