5 Smart Stock Buyback Plays

We’re halfway through the year, and after a rough first quarter it’s clear that this year has brought some changes that will require individual and institutional investors alike to rethink their strategies. On the plus side, recently we’ve seen a handful of big name companies announce hefty stock buyback programs. Just today, Wendy’s Co. (WEN) announced a 1.4 billion stock repurchase program. Recently, the fast food chain announced disappointing first-quarter results, so it’s possible that Wendy’s is trying to ease its shareholders’ concerns. And, it looks like it worked: WEN shares climbed 3% today.

Why do shareholders like stock buybacks? Today, I’ll explain exactly why they’re great news for investors and then highlight eight companies engaged in multi-million and billion-dollar stock buybacks that deserve a closer look. Five of these are excellent buys at current prices, two are holds and one is an outright sell.

But first let’s discuss why I consider stock buybacks a plus for investors:

  1. It’s a sign that a company considers its shares good bargain.
  2. Having fewer shares on the market reduces share price fluctuations.
  3. Stock buybacks increase earnings per share—helping a company beat analyst estimates when they announce quarterly results.
  4. 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
AAPL Apple, Inc. $140 billion A B Strong Buy
BBRY BlackBerry Limited $123.24 million B C Buy
DAL Delta Airlines, Inc. $5 billion C C Hold
GE General Electic Company $50 billion D D Sell
GRPN Groupon, Inc. $200 million C B Hold
SAM Boston Beer Company, Inc. $400 million B B Buy
TRI Thomson Reuters Corporation $1 billion B B Buy
WEN Wendy’s Company $1.4 billion A C Cautious Buy

Of these eight stocks, one stands out because its stock buyback program is by far the biggest. In April, Apple, Inc. (AAPL) increased its repurchase program more than 50% to $140 billion. It’s no secret that I’m recommending AAPL in Blue Chip Growth–we’re currently sitting on a 38% return on this position. AAPL currently earns an A-rating in Portfolio Grader and continues to be a Strong Buy.

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. Stock buyback or no, before buying a stock, you should first run it through Portfolio Grader to get a sense of its fundamental and quantitative health.

Sincerely,

Louis Navellier

Louis Navellier

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