We’re nearly halfway through 2018, and it’s clear that this has been the year of the stock buyback. According to J.P. Morgan, stock buybacks are expected to surge 51% year-over-year to $800 billion in 2018. And now that Apple Inc. (AAPL) has announced its own $100 billion stock buyback program (yes, you read that correctly), it’s looking more and more likely.
So today I want to explain exactly why this is great news for investors and then point you to seven companies engaged in multi-million and billion-dollar stock buybacks that deserve a closer look. Three of these are excellent buys at current prices and four are holds.
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.)
|Billion-Dollar Stock Buybacks||Company Name||Buyback Amount||Quantitative Grade||Fundamental Grade||My Take|
|Boeing||$18 billion||A||B||Strong Buy|
|Caterpillar||$10 billion||A||B||Strong Buy|
|Deere & Co.||$13 billion||C||C||Hold|
|Lam Research Corp.||$4 billion||C||B||Hold|
|McDonald’s Corp.||$15 billion||C||D||Hold|
|Micron Technology||$10 billion||A||B||Strong Buy|
|Pfizer Inc.||$10 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. Of the stocks listed above, my top picks are clearly Boeing (BA), Caterpillar (CAT) and Micron Technology (MU). I currently recommend all three in my Growth Investor newsletter, and all are excellent buys at current prices.