10 Stocks Shrinking Shares

Wall Street generally considers stock buybacks a bullish signal. Buybacks return capital to shareholders, while declaring 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 stock buyback programs, and then we'll consult Motley Fool CAPS to see which of those companies the 83,000-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 share-repurchase programs.

Investors at CAPS seem to have mixed feelings about this group of companies announcing buyback programs, since just half are rated with three stars or better. Yet just because a company has announced a buyback program, that doesn't mean the company will go through with the buyback. According to reports, Target, which announced its huge $10 billion buyback plan in November, has yet to buy a single share.

Buybacks have been partially fueled by the easy credit policies of the past few years. Companies didn't mind borrowing big bucks to repurchase their shares even if they were trading at all-time highs. Sears Holdings, for example, bought back shares when they were trading as high as $150 a share. According to Standard & Poor's, there were $586 billion in buybacks last year among S&P 500 companies, with $138 billion of that activity happening in the fourth quarter alone. Yet that figure was well below the record $172 billion recorded in the third quarter. With credit policies tight, we may be seeing far fewer share-repurchase programs in 2008.

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There always seems to be a handful of companies for which no amount of performance will sway analysts in realizing the growth potential they still hold. Online movie-rental leader Netflix is one such company for which analysts are apparently forever expecting the worst possible outcome. Rival Blockbuster (NYSE: BBI) was supposed to ruin Netflix's chance of growing when it rolled out a year ago its Total Access plan, which let movie renters return their movies to whichever outlet was most convenient. Yet that idea has gone bust, and Blockbuster's own future is very cloudy today.

Amazon.com, Wal-Mart, Apple, the cable TV companies. There seems to be no end to the list of competitors who have been expected to destroy Netflix's business model, yet those threats never really materialize. The movie-rental company's latest earnings report shows just how much analysts continue to underestimate it. Reported revenues, profits, and subscriber numbers all handily exceeded forecasts.

As top-rated CAPS All-Star TMFMoby has noted, still-emerging trends in the DVD market -- HD-DVD and Blu-ray -- spell not only a future for Netflix, but also huge growth opportunities.

If we haven't seen an extremely successful video streaming service to date, how do they hope to compete with a physical medium that is now 5x as good? ... Sony and Toshiba aren't battling it out in the HD-DVD/Blu Ray war for a format that's going away in the next 3 or 5 years.

Why should Netflix be sold off when it is one of the chief beneficiaries from this? ... [T]he U.S. has a broadband penetration of about 47%. Even assuming a broadband connection could stream a DVD quality movie (it can't) or 5x that in a Blu-ray, that's still a lot of people who have no option but to use a physical medium. Show me an infrastructure to support this kind of streaming and 75% of the U.S. willing to pay for it and I'll show you a bad investment in Netflix.

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