Shrink! Buybacks of 10 Undervalued Stocks

Stock buybacks are generally considered a bullish signal on Wall Street. They often announce management's belief that its stock is cheap, and that its own shares will provide its best return on investment. Like dividends, buybacks also let companies return capital to shareholders.

How buybacks work
Done right, share repurchases will increase earnings per share, so long as profits stay at least at the same level. A company with $1 million in earnings and 1 million shares outstanding will have EPS of $1. Now, if it buys back 250,000 shares, leaving only 750,000 shares outstanding -- and total profits remain $1 million -- its new EPS would be $1.33, or $1 million divided by 750,000.

We're seeking companies that have announced stock-buyback programs. Then we'll head over to Motley Fool CAPS to get some insight into the 76,000-strong investor community's preferred picks. If companies announce stock buybacks, and CAPS' top investors endorse their future prospects, 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)
Affiliated Computer Services	11/26/07	$1 billion	*
Fastenal (:FAST)	11/27/07	1 million shares	*****
Panera Bread (NASDAQ:PNRA)	11/28/07	$75 million	***
Principal Financial Group	11/28/07	$500 million	****
Buckle	11/28/07	500,000 shares	**
CB Richard Ellis (:CBG)	11/29/07	$635 million	***
Drew Industries (NYSE:DW)	11/30/07	1 million shares	*****
Genworth Financial (NYSE:GNW)	11/30/07	$1 billion	***
Perry Ellis (NASDAQ:PERY)	11/30/07	$20 million	**
Callaway Golf (NYSE:ELY)	11/30/07	$100 million	**

Sources: Company press releases, Motley Fool CAPS.

The CAPS Advantage
Investors at CAPS seem to not have a very high opinion of this group of companies announcing buyback programs. Only three have garnered three stars or more in CAPS, out of a possible five.

Yet one of those top-rated stocks could arguably also be one of the more boring industries to operate in. Ranking up there with watching paint dry, Motley Fool Hidden Gems recommendation Drew Industries manufactures parts for RVs and mobile homes -- things like windows, doors, electric stabilizer jacks, and the like. Exciting stuff, I know. Yet as investing legend Peter Lynch liked to point out, boring is good when it comes to investing. And sure enough, the markets have been very good to Drew, which has risen 11% year to date.

Trading at just 13 times next year's earnings, and with an enterprise value-to-free cash flow ratio of less than 10, Drew looks pretty cheap at these prices. Most of the nearly 400 CAPS players weighing in on the RV-parts maker seem to be in agreement with CAPS player nedsully about its Lynchian qualities: "Boomers have to live somewhere and these guys [supply] parts to all the major RV and Mobile Home manufacturers. Not sexy but will be very profitable."

That's a view smith972 can agree with. He noted earlier this year that the conservative nature of management makes Drew attractive: "Boring and conservative but aggressive is the best way to describe this management. DW is well-managed and I expect to see some stead growth from them."

Foolish fallout
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