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 buybacks recently, then consult Motley Fool CAPS to see which of those the investor community favors most. If CAPS' top investors endorse the prospects of companies announcing buybacks, Fools should take notice.

Here is the list:

Company	Buyback Announcement Date	Amount of Buyback	CAPS Rating (5 max)
United Technologies (NYSE: UTX)	June 11	60 million shares	*****
Fossil (Nasdaq: FOSL)	June 11	2 million shares	**
Cogent Communications	June 11	$50 million	*
Actel	June 12	1 million shares	**
InfoSpace (Nasdaq: INSP)	June 16	$100 million	**
Alkermes (Nasdaq: ALKS)	June 16	$40 million	****

Sources: Company press releases; Motley Fool CAPS.

Investors at CAPS are divided over this group, with only two companies having earned three-star or better ratings. Yet it should be noted that announcing a buyback program doesn't mean the company has to buy any shares.

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 amongst S&P 500 companies, with $122 billion in the fourth quarter. Yet announced buybacks in the first quarter of 2008 slumped to just $76 billion. With credit policies tight, we may see far fewer share repurchase programs this year, or more companies issuing shares to raise money.

Searching for a solution
As a fallen dot-com darling, InfoSpace is a shell of its former self, having to compete against the likes of Google (Nasdaq: GOOG) and Yahoo! (Nasdaq: YHOO) in the rough-and-tumble of search engines. InfoSpace had hoped that being an online directory or providing mobile content would be the spark to separate it from the others, but those businesses were sold last year. Now, it's left trying to attract eyeballs to its "metasearch" sites like Dogpile.com and WebCrawler.com. Metasearch actually differs from the competition because it pulls results from several other search engines to display on its own pages. That hasn't helped much, and the divestitures helped sink InfoSpace's already-declining share price.

CAPS investor equalfuture finds InfoSpace to have outlived its usefulness. "A relic from the dot.com days. It has outlived its expected lifespan and the day has come to put it out of its misery." Although they rate it differently, that thinking might not be so far apart from top-rated All-Star Jeffreyw, who rates it an outperform as a takeover candidate.

Another to take flight
It's a different situation with diversified industrial company United Technologies, which has a hand in many pies with well-known divisions like Otis elevators, Sikorsky helicopters, Pratt & Whitney engines, and Carrier heating and air conditioning systems. Its relationship with Boeing (NYSE: BA) has caused a few problems as the plane maker delayed the debut of its Dreamliner 787, but United Technologies' panoply of divisions should make it an attractive stock in a slowing economy.

As CAPS investor KipLargo relates, this is the kind of stock that's a "buy and forget" for your portfolio.

The best [Buffett] stock that [Buffett] doesn't own, or at least that [I] know of. This is the type of stock you buy and reinvest the dividends into. If you want an IRA stock, this is the one.

Foolish fallout
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