On the surface one may assume that a company that announces a share repurchase is doing so because they feel that their stock is undervalued. Sometimes this is the case, and sometimes its a way for insiders to fill their wallets.
According to TrimTabs," 1,012 U.S. public companies announced $456 billion in stock buybacks this year, breaking the previous record set in 2004 when 728 companies said they would repurchase $312 billion worth of their own stock".
If corporations are buying back shares, and insiders are too, this is a bullish sign. However, often companies will announce buybacks, but will not tell investors that the purpose was to offset employee stock-option exercises.
Unfortunately, we have to continually play "junior detective" on almost every piece of information releases by corporations and Wall Street.
I have been reporting the massive amount of insider selling that has taken place over the last 12 months. We may get a nice rally in the weeks ahead, but until insider selling turns to buying, I am going to follow the insiders.
Comments (2)
Most investors get giddy when companies announce buybacks.
We turn cautious.
We only accept buybacks when all other opportunities for creating shareholder value have been exhausted.
Before the champagne pops, we'd like know why the company isn't increasing its dividend before it buys stock back.
Dividends are money in your pocket; you can then decide if you want to take the cold cash or buy more shares.
Alternatively, why not spend the cash on research and development, or in some other way that will cause the business to grow?
Or has management has simply run out of ideas for growing the business?
Companies often say their shares are trading at attractive prices, so that buying them is a good investment.
What companies don't realize is that whenever they announce a stock buyback, they're also raising a red flag and inviting analysts like us to deconstruct their annual reports and conference calls even further.
Why is the stock trading lower?
Finally, growth addicts would probably prefer to see the companies they are invested in deploy all their spare cash towards acquisitions.
In sum, cash cows like Cisco (CSCO), Microsoft (MSFT), and Intel (INTC) are buying back their stock in droves.
But don't embrace the idea without raising the proverbial eyebrow.
Posted by catablast.com | January 4, 2006 1:48 AM
Posted on January 4, 2006 01:48
I rarely buy a stock where shares outstanding, rise more than 3 percent year over year. I prefer a 5 percent buyback. Why do shares outstanding rise, stock option ownership theft by the large stockholders and the managment they hire.
Stock buyback announcements mean nothing, what to look for is annual stock buybacks over decades. Phillip Morris use to do buybacks, when they stopped I sold. Stock with increasing shares outstanding is a sign you are not buy a stock, but a means for CEOs to take your money in a ponzi scheme. SHFL, CHH, SUn all all examples of buyback stocks.
Posted by Bill Berggren | January 5, 2006 1:25 AM
Posted on January 5, 2006 01:25