6 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 companies the 95,000-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 repurchases.

Company	Buyback Announcement Date	Amount of Buyback	CAPS Rating (out of 5)
Lincoln Educational Services (Nasdaq: LINC)	April 1	1 million shares	***
Sempra Energy (NYSE: SRE)	April 2	$1 billion	*****
STMicroelectronics (NYSE: STM)	April 2	30 million shares	***
Female Health	April 3	2 million shares	NR
Western Digital (NYSE: WDC)	April 3	$500 million	****
Somanetics (Nasdaq: SMTS)	April 3	$15 million	****

Sources: Company press releases; Motley Fool CAPS.

Investors at CAPS seem to approve of this group of companies; we can tell because of the three-star or better ratings.

Buybacks have been partially fueled by the easy credit policies of the past few years. Companies didn't mind borrowing big bucks to repurchase their shares even if they were trading at all-time highs. 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 was 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, or companies less willing to follow through. Just because a company has announced a buyback program doesn't mean it has to buy any shares.

Proficiency in consulting
With all the talk of sleek and sexy portable consumer products, flash drives reap the lion's share of news content and water cooler gossip (at least around flash drive manufacturers' water coolers). Sometimes forgotten is the traditional hard disk drives from manufacturers like Western Digital and primary rival Seagate Technology (NYSE: STX). They both make desktop, mobile, and consumer electronics drives and storage products, and sell mainly to original equipment manufacturers. Because they depend on the cycles of the PC industry, they are often subject to the same market forces that drive them.

While hard disk drives for the most part have been able to fend off incursions of flash drives into their core markets -- in large part because flash drives tend to offer slower transfer speeds and because of cost factors -- as technology advances, those gaps ought to narrow. However, Western Digital's primary hard disk drive market has caused at least one analyst to downgrade the stock amid concerns of industry weakness.

Reaction by CAPS investors, though, has been bullish. More than 95% of them who rate Western Digital still see it outperforming the market, and some, like All-Star TheHarm, who has a 93.97 player rating, are impressed by its "insane" record on earnings.

So tech isn't that hot right now ... so what [makes] Western Digital a buy? Well ... a P/E near 9, and P/S at 1, and a [return on equity] of 40%. Isn't that enough? If not, add the 15% insider holding, y-o-y quarterly revenue growth of 56%, quarterly y-o-y earnings growth of 138%, and an insane amount of earnings surprises. Not to mention, I don't think this stock has any worthy competitors. Also, coming from a computer nerd, I know this company makes a sick hard drive (the [R]aptor) and will only continue to produce the best in computer technology.

Foolish fallout
You've heard from your fellow investors -- now it's your turn. Motley Fool CAPS is a completely free, fun service where more than 95,000 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.