Shrink! Buybacks of 10 Undervalued Stocks

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, as long as profits stay at least at the same level. A company with $1 million in earnings and 1 million shares outstanding will have earnings per share of $1. Now, if it buys back 250,000 shares, leaving only 750,000 shares outstanding -- and total profits remain $1 million -- the 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 70,000-strong investor 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 seem to be split pretty evenly in their opinion this group of companies announcing buyback programs -- half have garnered a top four- or five-star rating from our participants.

Although some CAPS leaders have soured on data-storage specialist EMC, it still retains a five-star rating and is offering a fairly meaty $2 billion stock repurchase plan. More than 1,750 CAPS investors have rated EMC, and 95% of them think it will outperform the market. Although a large part of that bullish sentiment continues to center on its being the largest shareholder in virtualization-solution provider VMware (NYSE:VMW), that's not the only reason players are optimistic about the company.

For example, CAPS All-Star CaptBeer, with a 97.48 player rating, sees the oil industry as being a larger catalyst for future growth.

You think your family photos, MP3's, iPhones, iPods, digital movies etc. take up a lot of bandwidth and storage space? Well, that's nothing compared to the amount of space being eaten up by Seismic Data in oil companies and seismic service companies. ...  In the "Oil-Bid-Ness" EMC is the top dog for Storage, Archival and backup solutions for all sorts of technical data! They are on the way UP!

Yet it's the VMware connections that elicits the most excitement from many of the All-Stars -- such as preciserm, who thinks the two may walk in lockstep for a while.

This stock is huge because of the VMWare IPO. There chart is starting to resemble the VMW chart. Owning 90% of the most talked about IPO since Google isn't bad at all. Many hedgies and investors will be covering soon and realize how great this company is. Once quarterly earnings come out after [VMWare's effect] there is no stopping EMC.

Foolish fallout
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