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 the company's own 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 85,000-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.

Company

Buyback Announcement Date

Amount of Buyback

CAPS Rating (out of 5)

Humana

2/22/08

$150 million

****

Omnicell

2/25/08

$40 million

***

Arthrocare (NASDAQ:ARTC)

2/26/08

$75 million

*

IBM (NYSE:IBM)

2/26/08

$15 billion

***

Allstate (NYSE:ALL)

2/26/08

$2 billion

****

Aruba Networks (NASDAQ:ARUN)

2/26/08

$10 million

***

Sigma Designs (NASDAQ:SIGM)

2/27/08

2 million shares

****

Frontier Oil (NYSE:FTO)

2/28/08

$100 million

*****

Gap Stores

2/28/08

$1 billion

*

Valero (NYSE:VLO)

2/28/08

$3 billion

*****

Sources: Company press releases; Motley Fool CAPS.

Investors at CAPS seem to like this group of companies announcing buyback programs, since a majority earn ratings of three stars or better. Note, however, that just because a company has announced a buyback program, it's not actually obligated to go ahead and repurchase 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 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 more companies less willing to follow through.

A Blu-ray of hope
The format war over next-generation DVDs is over, and Sony's Blu-ray is victorious. With rival Toshiba announcing that it will no longer manufacture competing players in the HD-DVD format, Blu-ray can now mount an offensive to convince consumers that it's okay to buy the next generation in high-def playback. It's generally believed that high-definition DVD players haven't sold as strongly as anticipated because consumers didn't want to get stuck with the equivalent of a Betamax VCR.

That's good news for chip maker Sigma Designs, which holds an overwhelming market-share lead in the provision of chips for Blu-ray devices. Despite the encouraging signs from this development, shares of Sigma Designs have been plummeting, falling nearly 50% since the beginning of the year. Perhaps next-gen DVDs are seen as more of a fad than trend, despite high-def discs' greatly improved picture quality.

With more than 700 investors weighing in on Sigma Designs on CAPS, 96% see the chip maker outperforming the market. Many investors, like Robear1020, do look to Blu-ray as the next technology that will propel the company forward. Others, like mikethejoker, see its many irons in the fire (or chips in the array) as the reason Sigma Designs will succeed, as outlined in this pitch late last month:

Leading position in high-growth markets that will grow faster than most expect. What's not to like about Blu-Ray, HDTV, IPTV, media extenders and UWB? Yes, there will be more competition in '09-'10, but it's Sigma's to lose.

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 85,000 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.


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