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 correctly, 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 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 -- 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 73,000-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 fairly optimistic about this group of companies announcing buyback programs; more than half of the firms have garnered a top four- or five-star rating.

Specialty metals producer Allegheny Technologies has been able to benefit from the surging demand for titanium, a lighter, more resilient metal than steel. Boeing, for example, which itself has authorized a massive $7 billion share repurchase program, has been using titanium purchased from Allegheny to reduce the weight of its planes. The first half of the current fiscal year knocked back the metals producer, as the credit crunch roiled the markets. But with a strong second half forecast, CAPS players see opportunity here.

Top-rated CAPS All-Star jester112358, with a 99.92 player rating, expects continuing titanium demand to position Allegheny for future growth: "The substitution of Titanium for steel is accelerating in many applications, boding well for this stock which is well off its 52 week high. Attractive P/E which should be lower in the future."

CAPS investor eslough adds that demand in emerging economies should give Allegheny additional chances to surpass previous efforts: "This stock will continue to move higher as the global aerospace boom is still in its infancy. Demand for new, more fuel-efficient passenger jets should continue to explode as the economies of India, China, Brazil, etc. continue to expand."

Foolish fallout
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