Companies Investing Right Along With You

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 new or expanded stock buyback programs, then consult Motley Fool CAPS to see which of those firms the 180,000-strong investor community favors most. If CAPS' top investors endorse the prospects of companies announcing buybacks, maybe Fools should take notice.

Here are some of the latest companies to announce share repurchase programs over the last month:

Stock

CAPS Rating (out of 5)

Buyback Amount

New or Expanded

Invesco Mortgage Capital (NYSE: IVR  )

****

7 million shares

New

Marvell Technology (Nasdaq: MRVL  )

****

$500 million

Expanded

Teva Pharmaceutical (Nasdaq: TEVA  )

*****

$3 billion

New

But don't forget, Fools -- a company isn't obligated to repurchase shares just because it announced its intention to do so. So don't use this list as a reason to buy by itself, rather use it as a launching pad for additional research.

Shining a light on growth
I've remarked before the Federal Reserve's Operation Twist program, which artificially keeps interest rates low, hurts a large number of financial institutions because it encourages borrowers to refinance at lower rates. It clears the books of banks and mortgage lenders of higher-interest loans and replaces them with others that have far less favorable terms.

Invesco Mortgage Capital was the victim of the Fed's policy as it experienced higher prepayment rates on loans backed by agency-backed securities (such as those underwritten by Fannie Mae or Freddie Mac), which resulted in lower asset yields. Moreover, it had to reduce the risk it faced from the European sovereign debt crisis, which led the mortgage REIT to cut its dividend for the second straight quarter, from $0.80 to $0.65.

The analysts at FBR Capital Markets were none too pleased by this, as they downgraded the stock to market perform. The fact the mREIT cut its dividend again suggested to the analysts that Invesco's finances were worse than they originally thought, and that the company used money from a recent raising of capital to maintain liquidity.

Although Annaly Capital (NYSE: NLY  ) and American Capital Agency (Nasdaq: AGNC  ) are subject to the same harmful Fed policies as Invesco, they have proven themselves more competent stewards of shareholder value, and investors would probably do well to stick with them. I've marked Invesco to underperform the market on CAPS, but that puts me in the decided minority, where 97% of those rating see it doing just the opposite.

Tell us on the Invesco Mortgage Capital CAPS page why I'm wrong, then add the stock to your watchlist to see if the buyback signals the stock has hit an inflection point.

Stuck in the mud
With the floodwaters receding in Thailand, the semiconductor industry so dependent on the country looks like it will rise out of the muck much faster than anticipated. Drive maker Western Digital (NYSE: WDC  ) said it resumed production at its largest plant there, and it now expects to generate revenues of $1.8 billion for the fourth quarter, well ahead of the $1.2 billion analysts had been forecasting.

Intel recently said Thailand was a large part of the reason its revenues would fall by about $1 billion, and while the drive market will be constrained still, look for things to pick up in the first quarter of 2012.

That's good news for Marvell Technology, which counts Western Digital as one of its biggest customers. While it also believes Thailand will impact its results, it's also looking for smartphone sales particularly in China to help bolster operations.

With 95% of the more than 1,400 CAPS members rating Marvell to outperform the market, it says they expect the chip and components maker to come through just fine. Tell us on the Marvell Technology CAPS page or in the comments section below if you think a buyback now is smart, then go add it to your watchlist to see how it plays out.

A cliffhanger
With the patent cliff of key drug expirations faced by major pharmaceuticals Pfizer and Merck (NYSE: MRK  ) , the market may be underestimating the opportunity before Teva Pharmaceuticals, which generates more than half of its sales from generics. Of course it has its own branded drugs like Copaxone, from which it gets more than 20% of its revenues, but it will lose patent protection in a few years.

In a bid to minimize Copaxone's importance, Teva bought Cephalon for $6 billion, but that drug maker got most of its money (41%) from sales of sleep disorder therapy Provigil, which loses patent protection next year! Still, there promises to be a lot of business coming Teva's way.

The market, however, wasn't thrilled with the pharmaceutical's guidance, which saw revenues in line with expectations but the midpoint of earnings forecasts below the consensus estimate. Shares of Teva trade more than 25% below their 52-week high, and they're off 18% for the year.

CAPS member BigFatBEAR finds Teva to be a "growth story trading like a value story":

Uh-oh, looks like a just stumbled onto a cash cow with growing dividends and solid balance sheet.

Tell us in the comments section below if it can walk the fine line between branded drugs and generics, then follow along by adding the stock to the Fool's free portfolio tracker.

Foolish fallout
Sign up for CAPS today and share your best pitch for why a company buying back its shares is a reason for you to buy too -- or not!

Or maybe you should check out the one stock the Motley Fool thinks will profit from the largest technological transition investors have ever witnessed, a potential trillion-dollar revolution! It's happening in the mobile industry, and the new special free report is yours free for the taking, but only for a limited time, so act now.

Fool contributor Rich Duprey owns shares of Intel, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Teva, Annaly, Western Digital, Intel, and Marvell, and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of Annaly, Pfizer, Teva, and Intel, as well as creating a bull call spread position in Intel. 

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 23, 2011, at 9:08 PM, 1caflash wrote:

    Hi, Rich! Happy Holidays! I don't have TEVA or IVR. Allow me to write about 17,000 CIM shares. I like Math, but for this year-end exercise, I used a calculator. Please follow me. The end result can be debated because there are Variables No Investor Knows for every time period, including dividends, brokerage fees and taxes. You will have a Constant $3.00 Share Price. Invite INVESTORS YOU KNOW TO DO THIS. Let's Play "DRIP GAME". Multiply 17,000 by Eleven Cents. Divide that amount by 3. Put 623 in a special column. Draw A Card. "Chimer declares 11 cent divdend for 2nd quater." Look at the Box in which this game came. That explains it! "Made In China". Add 623 to 17,000. Draw A Card. "Company declares eleven cents dividend for third quarter". Multiply that by the updated share count and divide by 3. Add 646 to 17,623. Draw A Card. "Same Dividend Per Quarter". The Gamemaker was getting weary. Multiply 18,269 by .11 and divide that by 3. WAIT!!! You FORGOT to put 646 below 623!!!! What? You are Filing A Claim Against The Toymaker For Bad Instructions? This Is Not "The Blame Game". Can Your Lawyer and Continue. Put 669 below 646. You are now in December 2012. Did You Notice the "OOPS PILE"? You Are Right! The Instructions Are Not Clear! Have Fun and Continue by Drawing A Card from the OOPS PILE. "Chimera declares eight cent dividend for 1st quarter 2013". Multiply 18,938 by .08 and divide that by 3. Put 505 below 669. Keep Playing this Version and You will discover that for the 1st quarter 2014, Chimera Upped its dividend to Nine Cents-Per-Share. COMPANIES NEED TO SURVIVE; SOMETIMES DIVIDENDS GET CUT. STICK WITH THEM LONG-TERM!!!!! BE GLAD YOU GET DIVIDENDS. THEY ARE BLESSINGS FOR SHAREHOLDERS. I Hope YOU Had a Good Time Bearing With Me. Enjoy Your Families, Friends and Faith. I Cannot Speak, Write , Read or Understand Chinese or any other language. I ADMIRE SMART PEOPLE FROM EVERY CULTURE! Thanks to CHIMERA and MOTLEY FOOL FOR THIS OPPORTUNITY.

  • Report this Comment On December 23, 2011, at 9:24 PM, 1caflash wrote:

    The Gamemaker Skipped A Quarter in 2012. I'm Sure You Will Catch It.

  • Report this Comment On December 23, 2011, at 9:58 PM, 1caflash wrote:

    The Gamemaker has recalled the game to fix what quarters are mentioned. The Revised Version of the fictional "DRIP GAME" begins with Chimera's Fourth Quarter Dividend. You can tell I never worked for any of the legitimate game-making companies. Examples of possible CIM dividends are used NOT to scare anyone from investing in this fine Company. I ADDED 3,000 shares during December 2011 which brought my total amount to the 17,000 I have. Chimera is in my DRIP. PEACE to You and Yours.

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