10 Stocks Shrinking Shares

Wall Street generally considers stock buybacks a bullish signal. Buybacks return capital to shareholders, while they declare 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 buyback programs and then consult Motley Fool CAPS to see which ones 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 repurchase programs.

Sources: Company press releases; Motley Fool CAPS.

Investors at CAPS seem to approve of this group of companies announcing buyback programs, because most have received four-star or better ratings. It should be noted that just because a company has announced a buyback program, that doesn't mean it has to buy back any shares.

The easy credit policies of the past few years have helped to fuel buybacks. Companies didn't mind borrowing big bucks to repurchase their shares even if they were trading at all-time highs. According to Dealogic, there were $538 billion in buybacks last year amongst S&P 500 companies, with $122 billion in the fourth quarter alone. Yet announced buybacks in the first quarter of 2008 slumped to just $76 billion. With credit policies tight, we may see far fewer repurchase programs this year, or more companies issuing shares to raise money.

A nervous habit
It hasn't been a good year for pharmaceutical company Biovail. Although the Securities and Exchange Commission did conclude an investigation into allegations that the company had inflated the value of drugs lost in a trucking accident and the company got off relatively easy, executives are still under the microscope. To regain its focus, the pharma conducted a strategic review and has decided to concentrate on drugs treating central nervous system disorders. To that end, it plans on spending about $600 million on research and development over the next few years. But that also means it will be getting out of other lines and will have to close plants and take charges, which may depress earnings.

Some investors  are looking for Biovail to continue to create partnerships to realize its value. Says player aladha: "Look for these guys to get another co-promote, in license or product acquisition opportunity as the likes of Pfizer (already a partner) continue to "right size" their product mix and sales force sizes and look for someone to keep the voice out there promoting some steady products that don't merit the time of the traditional blockbuster franchise products."

Similarly, turikalex1 sees management's previous endorsement of its dividend policy as hope for a turnaround.

In the release of fourth-quarter results the company reiterated the sustainability of its $1.50 per share annual dividend. Biovail designs better versions of already successful drugs. For example, the company developed Cardizem LA, a long-acting version of a popular blood pressure medication, as well as Ultram ODT, a pain pill that dissolves on the tongue. Patents for improved drugs are less durable than those for new compounds. However, development costs are limited, and a stable of proprietary technologies ensures a continuous flow of new targets.

Foolish fallout
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