The stock buyback frenzy continues.
Corporate America is raising approximately $2 trillion in the bond market, and some companies are using this money to buy out the competition. Others are finding another use for all that cash: They’re giving some back to shareholders in the form of share repurchase. This is fantastic news for shareholders, and here’s why:
- It’s a sign that a company considers its shares good bargain.
- Having fewer shares on the market reduces share price fluctuations.
- Stock buybacks increase earnings per share—helping a company beat analyst estimates when they announce quarterly results.
- For dividend-paying companies, buying back stock means that there are fewer shares that require a quarterly dividend payment.
That being said, right now I’m telling all of my readers to be on the lookout for companies that are aggressively buying their stock back. I expect the market choppiness to continue through the end of May, so gravitating towards these companies is an important part of any conservative investing strategy.
To help you get started, I’ve compiled a list of 10 of the biggest stock buyback launches that you should keep on your radar. (Of course, while a stock buyback program is a good sign for a company, it’s not a green light for a buy recommendation, so I’ve added a column with my Portfolio Grader recommendation for each stock.)
|Ticker||Company||Stock Buyback||Quantitative Grade||Fundamental Grade||My Take|
|AAPL||Apple Inc.||$60 billion||F||C||Strong Sell|
|C||Citigroup Inc.||$1.2 billion||B||C||Buy|
|CAT||Caterpillar Inc.||$1 billion||F||C||Strong Sell|
|CSX||CSX Corp.||$1 billion||D||C||Hold|
|IBM||IBM Corp.||$5 billion||F||C||Sell|
|K||Kellogg Co.||$1 billion||A||C||Strong Buy|
|MRK||Merck & Co. Inc.||$15 billion||A||C||Buy|
|QCOM||QUALCOMM Inc.||$5 billion||F||B||Sell|
|T||AT&T Inc.||$11.1 billion||B||C||Buy|
|V||Visa Inc.||$1.75 billion||A||B||Buy|
So it’s clear that Visa Inc. (V) is currently one of the most promising stock buyback plays out there. Just today, shares gapped up after the company surpassed analyst sales and earnings expectations in the second quarter. According to Visa, second-quarter adjusted earnings weighed in at $1.92 per share, which trumped the $1.81 consensus estimate by 6%. Meanwhile, revenue jumped 15% to $2.96 billion on broad-based growth. Analysts had forecast $2.85 in revenue, so Visa posted a 4% sales surprise. Looking ahead to the rest of 2013, management expects double-digit net sales growth and earnings growth. I currently have this stock in my Blue Chip Growth newsletter and since adding it in November it has brought us a tidy 23% gain.
Meanwhile, I don’t want you to be taken in by IBM Corp.‘s (IBM) or Caterpillar Inc.‘s (CAT) recent announcements—buying pressure has hit rock bottom for both of these stocks so they’re just not worth buying right now. That’s all I have for you today—I’ll be in touch tomorrow with a briefing of the latest market moving earnings announcements.