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 note.

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

The CAPS advantage
Investors at CAPS seem to have mixed feelings about this group, with only two of the five companies earning four stars. All of them are buying back sizeable chunks of stock -- even LCA-Vision's $50 million program comes on the heels of a just-completed $50 million program during which it bought back 1.5 million shares. At current prices, the new repurchase plan could equal as much as 7% of the company's outstanding shares.

The Motley Fool Stock Advisor selection was recommended as a way to capitalize on the popularity of LASIK (an acronym for "laser-assisted in situ keratomileusis") vision-correction surgery. Yet with the procedures remaining pricey and housing values on the decline (meaning homeowners are unable to use the equity in their homes for such vanity purchases), sales and earnings have slid, and the outlook seems a little blurry for the rest of the year.

Admittedly, investors were a little more enthusiastic about LCA-Vision's prospects before the recent earnings report. For example, CAPS player barnetadb wrote the company was a "(n)iche play in a balanced portfolio, but the upside, while not 'unlimited', is still to be achieved. Recent 'blips' in the business model should be easy enough to overcome/absorb and continue the growth."

And bears have grown more voluble of late. For example, CAPS investor eyesurg1948 recently said that LCA does not have the newest, best technology.

This company markets the latest and best technology, yet they do not use IntraLase, a laser that creates the corneal flap and makes the surgery much safer. They also do not use the latest 2 lasers approved by the FDA. Therefore, they really do not offer the safest and best technology. People having LASIK right now are wanting the safest and best technology (the conservative majority) and are willing to pay extra for superior results. LASIKPlus does not provide this! They will be bankrupted soon.

Add in the concerns of CAPS All-Stars like MakeItSeven, who foresees a crowded market in a tight credit economy, and you have a business that's not yet ripe for an advance:

Business is saturated so customers will be harder to find especially since big-item discretionary spendings will be reduced in the future due to housing.

Teasing out Tessera
That doesn't seem to be the case with our other highly recommended stock, Tessera Technologies. While the semiconductor technology leader has found just six CAPS investors who think it will underperform the market, none have been willing to state the reasons for their pessimism. Compare that with the Tessera bulls, who see almost nothing but good times ahead -- particularly in light of its recent patent victory, as keahou noted earlier this year:

Tessera Technologies, Inc. develops and licenses miniaturization technologies for the electronics industry. TSRA recently won a patent battle. They now stand to collect royalties on all DDR2. Results to outperform expectations with a vast array of customers.

CAPS player DangerMoguls also sees positive developments, but he notes some things investors need to keep an eye out for:

Excellent IP play with a good portfolio. Has done a good job of getting the semi companies on board with royalties, which others (like Rambus (NASDAQ:RMBS)) have struggled with in the past. Expect some medium to long-term good performance on this.

The thing to watch is to make sure that the company continues innovation and adding new IP to the portfolio. Otherwise, like every semi cycle, companies will move on to other new technologies and leave TSRA behind.

Foolish fallout
Bull or bear, for or against, Motley Fool CAPS is a completely free, fun service where more than 60,000 investors have their say every day. You've heard from your fellow investors; now's your chance to say your piece. Click here to sign up today.

Both LCA-Vision and Gap are recommendations of Motley Fool Stock Advisor. Gap is also a recommendation of Motley Fool Inside Value. You can find other companies offering superb values with a free 30-day trial of any of the Motley Fool's investment newsletters.

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.