We’re over halfway through the year, and 2018 has established itself as the year of the stock buyback. Corporate America is buying their stock back at a pace not seen since 2007. In the second quarter alone, U.S. companies announced a whopping $436.6 billion in stock buybacks. And for 2018, stock buybacks are expected to surge 51% year-over-year to $800 billion, according to JPMorgan.
So today I want to explain exactly why this is great news for investors and then point you to eight companies engaged in billion-dollar stock buybacks that deserve a closer look. Four of these are excellent buys at current prices, three are holds and one is an outright sell.
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 | C | Buy |
| Caterpillar | $20 billion | C | B | Hold |
| Delta Air Lines | $5 billion | C | D | Hold |
| Home Depot | $15 billion | B | C | Buy |
| Mastercard | $4 billion | A | B | Strong Buy |
| Micron Technology | $10 billion | A | B | Strong Buy |
| Pfizer Inc. | $10 billion | C | C | Hold |
| Procter & Gamble | $5 billion | F | C | Strong Sell |
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), Home Depot (HD), Mastercard (MA) and Micron Technology (MU). I currently recommend all four in my Growth Investor newsletter, and all are excellent buys at current prices.
Sincerely,
Louis Navellier