Companies buy back stock for a variety of reasons. There are lots of companies with long-established stock-buyback programs that use their share repurchases to return capital to investors or prevent stock-based compensation from diluting investors.
On the other hand, some companies have just started buying back stock in 2022 in response to the recent market declines. Others have accelerated the pace of their repurchases to take advantage of the declines. The five stocks below look very interesting right now.
1. Simon Property Group
Investors are generally pessimistic about consumer spending, and this has caused Simon Property Group (SPG 1.09%) to plunge by about 32% from its 52-week high, despite excellent results from the business. This includes a 170 basis-point increase in occupancy at its properties over the past year. Simon approved a $2 billion stock-buyback plan (about 5% of the current market cap) and has repurchased nearly 2 million shares in the past two quarters alone.
2. Ally Financial
Shares of auto-lending-focused Ally Financial (ALLY 0.97%) have declined sharply this year as general economic pessimism has investors worrying that consumers will have trouble paying back their auto loans. However, Ally remains an extremely profitable business and has been aggressively repurchasing shares for years.
In fact, Ally's outstanding share count has declined by 32% over the past five years, including 12% in the past year alone. If Ally can navigate the challenging environment, these buybacks could be an excellent driver of long-term shareholder value.
3. Nextdoor
It's somewhat rare for an unprofitable business to allocate a large chunk of capital to buybacks, but that's exactly what neighborhood social network Nextdoor (KIND 1.50%) is doing. With shares trading for about 75% less than the company's special purpose acquisition company (SPAC) IPO price -- which is the price institutional investors paid -- Nextdoor announced a $100 million buyback plan in May of this year.
It spent $77 million of this through the end of the third quarter -- about 9% of its current market cap. Nextdoor's active user base is growing by 17% year over year (which is faster than other major social media companies) and it has more than $600 million in cash on its balance sheet. Therefore, it's not a shock that management decided to take advantage.
4. Moderna
Moderna (MRNA 1.45%) became an extremely profitable business when its COVID-19 vaccines rolled out and is using much of the billions it generated to fund a massive pipeline of other vaccines in development. This could pay off tremendously over the long run.
But management clearly sees opportunity with the stock price down by about 55% from its 52-week high. Moderna announced a $3 billion buyback program earlier in 2022 and then another $3 billion in August, which it's working on now. Combined, these represent roughly 10% of Moderna's entire market cap.
5. Empire State Realty Trust
There are few industries that have more investor pessimism right now than office space, and this has caused Empire State Realty Trust's (ESRT 1.48%) stock price to remain depressed since the COVID-19 pandemic started. However, the company's results have been excellent recently (occupancy is actually increasing), and management clearly sees value in its stock. From March 2020 through today, Empire State has spent $275 million on buybacks, and the company's entire market cap is less than $1.9 billion.
Should you buy these too?
Just because a company spends a lot of money buying back its own shares doesn't mean that it's the best move for you. But these are five well-run business that could definitely be worth a closer look while their prices remain well below their highs.
