10 Stocks Shrinking Shares

Stock buybacks are generally considered a bullish signal on Wall Street. They return capital to shareholders, while declaring management's belief that its own cheap shares are its best return on investment. As long as profits remain consistent, share repurchases can even increase earnings per share, by dividing the same amount of earnings among a smaller pool of shares outstanding.

Today, we'll draw up a list of companies that have announced stock buyback programs, then consult Motley Fool CAPS to see which of those firms the 83,000-strong investor community favors most. If CAPS' top investors endorse the prospects of companies announcing buybacks, Fools should take notice.

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

Investors at CAPS seem to have mixed feelings about this group of companies announcing buyback programs; only half are rated at four stars or better. Yet it should be noted that even if a company has announced a buyback program, it's under no obligation to actually buy the shares. According to reports from just a couple of weeks ago, Target, which announced its huge $10 billion buyback plan in November, has yet to buy a single share.

Buybacks have been partially fueled by the past few years' easy credit policies. Companies didn't mind borrowing big bucks to repurchase their shares, even if they were trading at all-time highs. Sears Holdings, for example, bought back shares when they were trading at $150 on average. According to Standard & Poor's, there were $586 billion in buybacks last year among S&P 500 companies, with $138 billion in the fourth quarter alone. Yet that figure fell well below the record $172 billion recorded in the third quarter. With credit policies tight, we may be seeing far fewer share-repurchase programs in 2008.

Navigating high values
Speaking of buying shares at high prices, Amazon seems to have drawn analysts' enmity. Wall Street doesn't seem to think that the online retailer is worth investors backing up the truck at these prices, even if the company's doing so. Sure, the company's producing enough cash these days to pay down debt, buy digital audiobook seller Audible (Nasdaq: ADBL), and buy back its shares. Still, some smart Fools think it's too early to tell whether Amazon can justify its lofty multiples by weathering the recessionary storm buffeting the economy.

That debate is also taking place in CAPS. Last October, Amazon's top bear pitch, by top-rated All-Star DownWithInfidels, didn't understand how the Motley Fool Stock Advisor recommendation could succeed much longer:

Americans cannot afford to pay off their house, but they can afford to buy luxury items on the Internet in such a manner that Amazon is allowed a P to E of over 50? This is stupid. I imagine Amazon rises to Christmas since that is such a big spending period over there on credit of course, then 2008 will be very bad for Amazon, very bad for the $US and very good for Gold.

In comments posted to that pitch about a month ago, another bearish CAPS player, tengrandchicago, pointed out that even with nearly half of Amazon's revenue coming from overseas, the company's valuation remains heady:

They also operate in Japan, Canada, UK, Germany, France, and China.... If you look at their annual report, almost half of their revenues comes from outside the US. I do give Amazon credit for expanding their business beyond the US, as it may help deflect the hurt we are about to encounter. However, as an investment I wouldn't touch Amazon until the valuation gets into check.

On the other hand, in another reply to the original pitch just a couple of weeks ago, All-Star Deliman701 found the retailer cheap. He noted the variety of products, the low prices, and ease of ordering as reasons for Amazon's certain success:

If I were you I would end the underperform of Amazon because it will continue to rise through 2008, It has strong potential for growth as one of the cheapest retailers around. I personally receive a package from Amazon around every other week because of the cheap prices, a wide array of choices. It is also growing its subscriber base where people actually get Food and other household items delivered to them, which seems promising.

Foolish fallout
You've heard from your fellow investors -- now it's your turn. Motley Fool CAPS is a fun, completely free service where more than 83,000 investors have their say every day. Sign up for CAPS today, and share your best pitch for why your favorite stock will beat or lag the market.