Stock buybacks are generally considered a bullish signal on Wall Street. They 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.
But don't forget: A company isn't obligated to repurchase shares just because it announced its intention to do so. So don't use the announcement alone as a reason to buy; rather use it as a launching pad for additional research.
More, more, more!
Despite beating analyst expectations last quarter, semiconductor chip maker Marvell Technology
Yet the markets aren't so sure. Shares have fallen about 15% in the last month and are down nearly 30% from their highs. Could it be that the profit picture that's weighing down Western Digital
If that's the case, then Marvell will be getting a good deal for the $500 million it added to its stock repurchase plan. Its mobile and wireless division grew 14% last quarter, and analysts see both China Mobile and China Unicom duking it out for a growing crop of 3G users. Its storage unit was up 20%.
Certainly the CAPS community sees the potential for Marvell to rebound smartly, as 95% of the 1,400-plus members who have rated it expect it to outperform the market indexes. Add Marvell's stock to your watchlist and let us know in the comments section below or on the Marvell Technology CAPS page if it can continue to chip away at the doubts and ascend to new heights.
Delivering the goods
A confluence of trends will push drug distribution specialist McKesson
McKesson is the leading drug distributor among a triumvirate of companies that controls 90% of the market and includes rivals AmerisourceBergen and Cardinal Health
Last quarter, distribution revenues jumped 10% as it added on new customers and made acquisitions. Margins are tight in this business -- McKesson sports operating margins of just 2.3% -- but that's well ahead of the 1.7% and 1.9% displayed by Amerisource and Cardinal, respectively, and the move toward generics will let it pad that lead a little more.
That could be why management has no problem accelerating its buyback program and adding another $700 million on top of what's remaining, even though shares have appreciated more than 12% this year. Although its technology solutions slipped slightly in the latest quarter, it's expecting growth next year to be in line with the 4% achieved for its fiscal 2012 year, particularly as medical IT regulations gain traction, and it's one of the reasons CAPS member KeithSpeights puts McKesson ahead: "Among many reasons, McKesson is solid in the area of payment bundling technology. Payment bundling will be a major factor for health care organizations within the next few years."
You can add your opinion in the comments section below, then add McKesson to the Fool's free portfolio tracker to see how well it maximizes its heft as the market turns in its favor.
Waste not, want not
If you're interested in health-care stocks like McKesson, you might want to expand your horizons to find maximum returns. Follow the money and meet a prime candidate for major returns in The Motley Fool's new report, "Discover the Next Rule-Breaking Multibagger." Click here for instant access to this free report.
Fool contributor Rich Duprey owns shares of Seagate Technology, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Western Digital and China Mobile. Motley Fool newsletter services have recommended buying shares of McKesson. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.