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 as long as profits stay at least at the same level. A company with $1 million in earnings and 1 million shares outstanding will have an 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, so we'll head over to Motley Fool CAPS to get some insight into the investing 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 |
Amount of Buyback |
CAPS Rating |
|---|---|---|---|
|
Mattel |
8/28/2007 |
$500 million |
* |
|
Frontier Oil |
8/29/2007 |
$100 million |
***** |
|
ENSCO International
|
8/29/2007 |
$500 million |
***** |
|
Chicago
Mercantile Exchange |
8/30/2007 |
1.6 million shares |
**** |
|
Steel Dynamics |
8/30/2007 |
5 million shares |
***** |
The CAPS advantage
Investors at CAPS seem pretty enamored of this group of companies announcing buyback programs, with three of the five companies earning five stars and one garnering four. Only troubled Mattel, a former Motley Fool Inside Value recommendation with its toys caught in the crosshairs of several massive recalls, has earned a one-star rating.
Most of them are buying back sizeable chunks of stock: Even Frontier Oil's seemingly stingy $100 million program -- totaling less than 3% of the company's outstanding shares at current prices -- comes on top of a just-completed $200 million program in which more than 5 million shares were bought back. Says CAPS All-Star nispe:
Here is a stock that has [taken] a beating after hitting record highs last month. Take a look at the earnings and do the math. This stock is on clearance...
Another oil driller, ENSCO International, has also decided to take advantage of the market's weakness and initiate a program to reduce its share count. Top-rated CAPS player JR10022, with a rating better than 99.82% of all other investors, notes that despite the rough patch we're in, now's as good a time as any to be picking up good companies.
This is a tough environment to invest in, but you just can't go wrong with oil drilling...oil prices aren't going below 65-70 again anytime soon, and people don't use less energy in a recession...
Like oil, steel is another industry that has been enjoying high demand, but some of the ardor has cooled off in recent months. Even in the face of lowered guidance, mini-mill operator Steel Dynamics remains upbeat about the market for steel products. It lowered its guidance only because of accounting adjustments related to its July acquisition of galvanized steelmaker The Techs.
Almost exactly one year ago, top-rated CAPS Fool TMFDitty noted that he was enamored of company management because of actions it was taking that are remarkably similar to those today.
Next to Nucor
(NYSE:NUE) , Steel Dynamics is perhaps the best minimill operator in the business. It recently hiked its dividend, then announced another round of share buybacks, actions that tell this Fool management is pretty darn confident in its future.
That's a sentiment jdmet can endorse, who has Steel Dynamics almost in his backyard.
Local company to me and I have met the management and they know how to run a business. They take good care of their employees and the favor is returned through production. I have owned stock for about 10 year[s] and it has done nothing but make me money. Started small and continue[s] to buy or build other plants. This rising U.S. steel company will definitely give competitors a run for their money.
Foolish fallout
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