We’re well into 2015, and it’s clear that this year has brought some changes that will require individual and institutional investors alike to rethink their strategies. One telltale indicator is that recently we’ve seen a handful of market bellwethers announce hefty share repurchase programs. According to Goldman Sachs, stock buybacks are expected to jump 18% year-over-year to $707 billion in 2015.
So today I want to explain exactly why this is great news for investors and then point you to eight companies engaged in multi-million and billion-dollar stock buybacks that deserve a closer look. Four of these are excellent buys at current prices, three are outright sells and one is currently a hold.
But first let’s discuss why I consider stock buybacks a plus for investors:
- 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.
With all of these benefits, it’s no wonder that many companies are relentlessly buying back their stock. Now, finding out which companies are engaged in share repurchase programs requires some research, so today I’ve compiled a list 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||Buyback Amount||Quantitative Grade||Fundamental Grade||My Take|
|ADBE||Adobe Inc.||$2 billion||C||C||Hold|
|DPS||Dr Pepper Snapple Group||$4 billion||A||B||Strong Buy|
|GILD||Gilead Sciences||$15 billion||B||B||Buy|
|GM||General Motors||$8 billion||D||C||Sell|
|PFE||Pfizer Inc.||$5 billion||C||C||Hold|
|VMW||Vmware Inc.||$1 billion||F||C||Sell|
|VZ||Verizon Communications||$5 billion||C||C||Hold|
What can we take away from this? Stock buybacks can be a powerful indicator for investors, but it takes more than a hefty share repurchase program to pass my screening tool.