5 More Undervalued Stocks Getting Bought Back

Stock buybacks are generally considered a bullish signal on Wall Street. They often 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 three stars or better. All of them are buying back sizeable chunks of stock -- even Silicon Labs, whose $400 million program quadruples the size of its previous buyback authorization, and actually represents about 20% of its outstanding share capital at current prices.

Yet even with the $5 billion Cisco is willing to shell out for its stock, you have to wonder if that's really the best use of its money. Sure, it's been buying up companies, and now instead of just being the "backbone of the Internet," it's also becoming an integral part of our home computing experiences, as Scientific Atlanta (cable set-top boxes) and Linksys (home routing equipment) are now part of its stable of companies.

Its shares have doubled in value over the past year, they sit at around their 52-week highs now, and although its market cap far surpasses rivals like Juniper Networks (NASDAQ:JNPR) and Nortel Networks (NYSE:NT), it carries a multiple of 26 times earnings. That may be better than
Juniper's valuation, even on a forward basis, but it doesn't mean it's cheap. Is this really the best use of Cisco's cash?

What do CAPS Fools think of Cisco? More than 3,300 investors have weighed in on the routing and switching company, and the bulls think it will beat the market handily. For example, StatsGeek -- who outranks just about every other CAPS investor ,with a 99.98 player rating -- believes Cisco is set to explode again.

The second wave of exponential growth is coming, and CSCO trades at 20x next year's estimates? [CEO] John Chambers is very bullish on the next 5-10 years. Cramer has this one right. Throw in the rotation out of financials and small caps into big cap growth and you have an excellent long.

fertilefunds also sees a boom coming, but he doesn't think comparisons with Juniper are valid.

Cisco is the class of the networking sector but with many products outside the networking sector.

While I like Juniper's long term prospects, I'm simply amazed at how investors can run up the price of Juniper who competes in really only two segments in the market, routing and security, where they are second and sixth at best, respectively in those categories. Cisco adds Voice, Video, Wireless, Storage, Optical, and Switching (the bulk of Cisco's Revs) plays where they are in the top 3 in every segment.

At these multiples, it is easy to see the greater "value." Look for them to run to close to 32 on whispers as Q4 and end of year numbers get announced around Aug. 10th. A range of 42-45 within 12 months.

Not everyone is enamored of Cisco's prospects, regardless of how bullish CEO John Chambers is. baillirw thinks much of the enthusiasm has already been priced into the stock.

While I like the fundamentals in the underlying company, the reality is everything working in Cisco's favour is already factored into share prices. Bulls point to numerous factors as to why you should own this company, but the reality is, no bears or neutrals are left to convert and that [is] exactly what the charts are saying. Everybody who wants to buy Cisco already has so only profit takers are moving this stock. Until we start seeing a new catalysis, shorts and bears are going to dominate in every rally.

So what's your take on Cisco? Is buying back its shares at this price folly, considering the run-up it's already had, or is this merely the ground floor of what will be the next stage in the stock's advance, making its shares cheap by comparison? Share your opinion with thousands of your fellow investors on CAPS.

Foolish fallout
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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.