Are These 2 Stocks Wasting Your Money?

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.

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

More, more, more!
This might be the new norm among network equipment makers -- buying back their shares as they've fallen low. Last time out, I noted that Riverbed Technology's (Nasdaq: RVBD  ) had doubled the size of its repurchase program authorization to $150 million, and now Aruba Networks (Nasdaq: ARUN  ) is authorizing a new $100 million buyback program.

The problem seems to be that analysts think network equipment makers like Riverbed, Aruba, and Acme Packet still have further to fall. Analysts at Pacific Crest say the whole sector is running headlong into economic headwinds that will see customers pull back on purchases. They might still make software buys, but hardware tends to get cut first.

Is there something to that? When I wrote about Riverbed, I pointed out it was in the midst of a product transition phase, causing customers to hesitate on making purchases and which led to a 47% drop in net income in the first quarter. Maybe it wasn't just the product cycle that was the issue. Aruba's fourth-quarter results saw weakening demand in Europe, underscoring analyst concerns about the sovereign-debt crisis, and Acme witnessed a 4% drop in revenues that caused profits to dramatically plunge from the year-ago period.

Of course, the upside view is that Aruba needn't buy shares right now so that should analyst fears pan out, it will be able to repurchase more at even lower levels. Of course, the stock is 50% below where it traded last year, though it has bounced off its lows.

More than 300 CAPS members have weighed in on Aruba, and more than 91% see it going on to beat the market averages. Add its stock to your Watchlist and let us know in the comments section below or on the Aruba Networks CAPS page whether you think there will be lower prices to scoop up shares.

A silver lining
Analysts aren't thinking much of the intermediate growth prospects for silver miners these days, either, and Moody's says that while Coeur D'Alene Mines (NYSE: CDE  ) ought to be able to have productive operations out of its Palmarejo and San Bartolome mines, which account for the vast bulk of its silver and gold production, it also increases the risks associated with operational problems that could arise at one or the other. Coupled with pricing pressures and higher cash costs than some of its rivals, Coeur D'Alene may not have the worst behind it.

Silver trades below $30 an ounce on the spot market after an amazing run to $50 an ounce last year on fears of rampant, runaway inflation caused by Ben Bernanke's monetary policies. That the feared devaluation didn't happen right away caused silver's price to plunge, taking with it many promising miners including Coeur D'Alene, whose shares fell 27% over the past year; Hecla Mining (NYSE: HL  ) , off 37%; and silver streaming specialist Silver Wheaton (NYSE: SLW  ) , down 18%.

Hecla's shares have probably taken a larger hit, because it's suffered from the kinds of operational issues analysts fear could sink Coeur D'Alene. It suffered a setback when regulators shut down its lead Lucky Friday mine until 2013. Contrast that with Silver Wheaton, which doesn't have mining operations itself but takes the streams produced by others, and the diversified risk explains its lower losses.

CAPS member cajun1958 seems cautiously optimistic Coeur D'Alene won't run into any buzzsaws like Hecla and finds the silver miner "selling only marginally above book value and while Au & Ag may not continue to rise they don't seem likely to fall soon." That might make its own new $100 million buyback program opportune.

You can add your opinion in the comments section below, and then add Coeur D'Alene Mines to the Fool's free portfolio tracker to see whether this turns out to be a waste of money for shareholders or a rich vein of opportunity.

Waste not, want not
If you're interested in energy stocks but don't want to play in the crapshoot the metals markets have become, read The Motley Fool's free report "The Only Energy Stock You'll Ever Need," which highlights the one company that will profit if oil prices spike again. But hurry -- the report's available for a limited time only.

Fool contributor Rich Duprey holds no position in any company mentioned. Check out his holdings and a short bio . The Motley Fool owns shares of Riverbed Technology. Motley Fool newsletter services have recommended buying shares of Riverbed Technology and Acme Packet and creating a synthetic long position in Riverbed Technology. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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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 July 05, 2012, at 10:18 PM, skypilot2005 wrote:

    Rich Duprey wrote:

    "Coeur D'Alene may not have the worst behind it."

    Yup.

    See:

    http://www.ryepatchgold.com/s/NewsReleases.asp?ReportID=5239...

    May 09, 2012

    Rye Patch Gold Provides Rochester Legal Update

    “Vancouver, British Columbia, May 9, 2012

    - Rye Patch Gold Corp (TSX.V: RPM; OTCQX: RPMGF) (the "Company") through its wholly owned subsidiary, Rye Patch Gold US Inc., the Company received notice from the Nevada Sixth Judicial District Court that a Special Master has been appointed in the lawsuit between the Rye Patch Gold US Inc. and Coeur Rochester Inc. A meeting with the Special Master will occur in May, and a schedule will be implemented to hear pre-trial matters. The trial to resolve the mining claim dispute is scheduled for November 2012.”

    “Under United States law, Coeur Rochester Inc's failure to pay the annual mining claim maintenance fees caused their 541 unpatented mining claims to be forfeited and void as a matter of law on September 1, 2011. Coeur Rochester Inc. has admitted they did not pay the mandatory annual mining claim maintenance fees. As a result, the Ownership of and title to the minerals on the federal public lands reverted to the United States government for 56 days (almost two months), and during that time, any U.S. citizen or U.S. company had the right to acquire mineral title through staking unpatented lode mining claims on the open federal lands. Rye Patch identified the open ground and beginning on October 27, 2011 through mid November 2011, located 402 unpatented lode mining claims which it filed and recorded with the Bureau of Land Management and Pershing County, Nevada.”

    http://www.ryepatchgold.com/s/NewsReleases.asp?ReportID=5348...

    June 29, 2012

    Rye Patch Leases Additional Land On The Rochester Project

    “Vancouver, British Columbia, June 29, 2012 - Rye Patch Gold Corp (TSX.V: RPM; OTCQX: RPMGF; FWB: 5TN) (the "Company") announces its wholly owned subsidiary, Rye Patch Gold US Inc., has entered into a lease agreement with New Nevada Land, LLC on four parcels of private land in Pershing County, Nevada, totaling approximately 4.12 square kilometres (1,015 acres) located within the LH unpatented mining claims on the Company's 100% owned Rochester project.

    The leased lands will give Rye Patch surface access to and from drilling sites on its LH claims. The parcels are located in Township 28 North, Range 34 East, Sections 19, 27, 29 and 33. The lands cover ground adjacent to the Mystic zone, Nevada Packard mine, and immediately south of the Lincoln Hill project. This brings the total lands leased from New Nevada Land, LLC to 6.2 square kilometres (1,530 acres).”

    Seems this should have been disclosed by the author. But, that's just me.

    Sky

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