Shrink! Buybacks of 10 Undervalued Stocks

Stock buybacks are generally considered a bullish signal on Wall Street. They often announce management's belief that the company's 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'll look for companies that have announced buyback programs, then head over to Motley Fool CAPS to get some insight into the 74,000-strong community's preferred picks. If companies announce stock buybacks, and CAPS' top investors endorse their prospects, Fools should take notice.

Here are some of the latest companies to announce share repurchases.

The CAPS advantage
Investors at CAPS seem to be split pretty evenly in their opinion on this group of companies, with half of them garnering top four- or five-star ratings.

Lab-testing company LabCorp has had something of a roller-coaster year, and after the sell-off following its seemingly weak third-quarter numbers (and tepid fourth-quarter guidance), it trades just about where it did at the start of the year. With repricing in the managed-care industry having about run its course, analysts are expecting the Motley Fool Stock Advisor recommendation to trade appreciably higher. This buyback authorization -- on top of $198 million remaining on the previous program -- seems to indicate that management feels its stock is a bargain, too.

That's the thinking of CAPS All-Star pennysplants, with a 99.56 player rating, who is grateful for opportunities like this.

With the recent sell-off, LabCorp now meets all the value criteria I consider important. With a healthy balance sheet and a new war chest for acquisitions and share repurchases, I believe LabCorp will reward long term investors.

Yes, this is a competitive sector. And there will be challenges along the way. But can anyone honestly say that this company (and this sector) will not continue to enjoy "healthy" growth?

Thank you, Ms. Market, for the entry point.

CAPS investor Doughboy33 concurs, adding that with a strong balance sheet, LabCorp is positioned to capitalize on opportunities as they emerge.

Admittedly there is some risk relating to slowing test volumes if the economy rolls over, but this is a fundamentally good business (as with [Quest Diagnostics]), effectively an oligopoly with good cash flow generation. Recent expansion of buyback indicative of [management]'s confidence. Also like the fact they have renegotiated all but one of [their] major contracts, pricing already reset so is a 'known', and cost reduction plans already being enacted.

With a large pocketbook, conservative guidance, and a wary market, investors looking for chances to get in ahead of the rush may have found a tempting occasion for doing so.

Foolish fallout
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