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 100,000-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.

Sources: Company press releases; Motley Fool CAPS.

Investors at CAPS seem to have mixed feelings about this group of companies; half of them have received ratings of three stars or better. Yet it should be noted that just because a company has announced a buyback program doesn't mean it has to follow through. A company is not obligated to repurchase shares just because it has announced its intention to do so.

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 Dealogic, there was $538 billion in buybacks last year among S&P 500 companies, with $138 billion in the fourth quarter alone. Yet announced buybacks in the first quarter of 2008 have slumped to just $76 billion. With credit policies tight, we may see far fewer share repurchase programs in 2008 -- or more companies issuing shares to raise money.

A naturally gaseous state
Grocery stores and some retail operations have a focus on what they call the "fourth wall" to drive additional revenue. This typically refers to the front section of the store, where customers enter and exit. For CVS Caremark, the fourth wall is the front end, where its checkout registers are. There, it typically sells candy, snacks, and other last-minute impulse items. These things are not the main revenue driver, but the "Snickers Factor" section does contribute to some 15% of the total and remains an important component of both transaction size and profitability.

Of course, CVS is about selling pharmaceutical items, not Snickers bars, and its pharmacy benefit management revenue grew more than 2% for the quarter. Overall revenue was up 62%, in part because Caremark was part of the company only for a portion of the quarter last year.

CAPS investors are particularly bullish about CVS, with more than 96% of 1,100 investors rating it an outperform. In December, IdogbertI took a moment to appreciate the reach that Caremark gives the pharmacy chain:

INVESTMENT. I'm long on CVS. Good long term prospects for consumer drugs, escpecially with aging boomers. Recently I divested my holding in WAG and picked up CVS. Caremark gives CVS additional reach and access to lower cost distribution channels (e.g., mail)

That could be because of some simple demographic factors, which investors like top-rated All-Star CAPS player feiled figure will not change anytime soon:

Country is getting older, fatter and more unhealthy at an exponential rate. Pharmacies will reap benefits from this unfortunate trend.

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 105,000 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.