Stock buybacks are generally considered a bullish signal on Wall Street. They 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 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 Announcement Date |
Amount of Buyback |
CAPS Rating (out of 5) |
|---|---|---|---|
|
Lowe's (NYSE:LOW) |
5/25/2007 |
$3 billion |
**** |
|
Qualcomm (NASDAQ:QCOM) |
5/21/2007 |
$3 billion |
*** |
|
Marvel Entertainment (NYSE:MVL) |
5/21/2007 |
$200 million |
*** |
|
American Eagle Outfitters (NYSE:AEO) |
5/22/2007 |
23 million shares |
**** |
|
Genzyme (NASDAQ:GENZ) |
5/29/2007 |
$1.5 billion |
**** |
The CAPS advantage
This week, the candidates are all generally well-favored by the more than 29,000 professional and novice investors in the CAPS community. It looks like some of the highest-rated stocks have also announced the biggest share repurchases. Among them, Genzyme has most consistently curried favor with investors, as revealed by its CAPS trend.
More than one-fourth of all CAPS investors rating the biotech, which focuses on rare genetic disorders, are considered All-Stars. These investors, who have most consistently outperformed their peers, see Genzyme outperforming the market by a wide margin.
Industry research and analyst firm Netscribes believes Genzyme is a strong, steady performer that throws off lots of cash at low risk:
The company's strategy of targeting orphan diseases i.e. diseases for which there is no known treatment has paid good dividends in terms of marketing exclusivity and pricing power.
The good thing about GENZ is the fact that it is not dependent on a single driver to propel its growth. Its multi-product portfolio serves [a] broad range of ailments. Thus it is somewhat insulated from a sudden meltdown in prices due to [a] single event. However, the company's lead product, Cerezyme which contributes almost one-third to its revenue seems to be reaching its saturation point which should be of some concern.
CAPS player samr123 agrees, calling Genzyme "one of the few profitable biotechs out there. It's the dominant player in many small but life-threatening disease niches. Also has growing diagnostics and medical device businesses."
What's your take? Can a niche biotech translate into a worthy investment? Are the bulls on target, or is there a better prescription for investing in the industry?
Foolish fallout
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American Eagle Outfitters and Marvel are recommendations of Motley Fool Stock Advisor, where a 30-day risk-free trial subscription gives you the inside dope on all of Tom and David Gardner's market-beating recommendations.
Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
