Buybacks ( General News )

Buybacks ( General News )

Postby winston » Tue Nov 01, 2011 6:48 am

Share buybacks will drive the market higher ?

We've been told over and over again that companies have "record amounts of cash on the balance sheet," and that this should be great for stockholders.

After all, they are going to return that cash to investors by buying back shares. And that should raise the stock price by reducing the amount of shares in issue.

So much for that. S&P 500 companies spent a massive $103 billion buying back their stock in the second quarter, on top of a thumping $85 billion in the first quarter.

And the results so far haven't been that impressive. InsiderScore reports that the second quarter figure was the highest amount spent on share buybacks "since the first quarter of 2008." Hmm. How'd that work out?

Turns out this logic was flawed in about three different ways. First, the "record cash on the balance sheets" is matched by record debts.

Second, if a company spends $100 million buying back stock, it should, rationally, make no real difference to the share price: The market value should fall by $100 million.

Third, "buybacks" are largely a fiction: While the company spends stockholders' money buying in stock, the compensation committee quietly hands out new stock to executives.

Net result: You're actually going backwards. Standard & Poor's reports that from 2000 through 2010, S&P 500 members spent a massive $2.7 trillion buying in stock.

Yet at the end of the decade, they actually had more shares and options outstanding than they did at the beginning.

Source: WSJ
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Re: Buybacks ( General News )

Postby winston » Thu Nov 17, 2011 7:32 am

A BIG reason to avoid buying most stocks today
by Sean Goldsmith

Executives of publicly traded companies are notoriously bad capital allocators. They overpay for companies. They make purchases using stock when it's undervalued.

They pay cash when the stock is dear. And they repurchase shares at the worst times.

It's no surprise that today, U.S. companies are buying back shares at the highest rate in four years.

A Bloomberg report attributed the purchases to companies "taking advantage of record-high cash levels and low interest rates to purchase equities at valuations 15% cheaper than when the credit crisis began."

Companies have authorized more than $453 billion in repurchases this year, putting 2011 on track to be the third-highest annual total behind 2006 and 2007.

Do you remember what happened after 2007?

"If the corporate community really agreed on the idea [that] we're heading to a recession, they wouldn't be buying back their stock," James Paulsen, chief investment strategist at Wells Capital Management, which oversees about $333 billion, told Bloomberg.

"That says something about their expectations. That's a testament from CEOs, corporate managements saying they are way undervalued and they have a positive outlook on the future."

Our friend, expert resource investor Rick Rule, likes to say, "you're either contrarian or a victim."

We know which camp Paulsen falls into. We hope you won't make the same mistake.

Source: S&A Digest
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Re: Buybacks ( General News )

Postby winston » Wed Jan 11, 2012 4:06 pm

Buy-backs: few and far between and erratic

In the US and Europe, CEO compensation is linked to EPS growth or an ROE formula with options attached. As such a CEOs’ incentive is to reach the goals that increase rewards. Buying back stock helps in getting you there.

In Asia-ex, CEOs are often the owners of the business and are not tied to an ROE or EPS formula. They already own the business. Furthermore, the ownership structure — minority owners of shares, but still the largest single shareholder — makes buybacks more difficult.

Buybacks may trigger take-over rules that mean they cannot be undertaken as the owning family lacks the capital to complete a full takeover.

For these reasons, buybacks tend to happen most often with previously nationalized companies, i.e. telecoms, rather than with private companies. That’s not to say that buybacks are not rewarded by the stock market, it is just that they are few and far between.

In terms of buyback performance, stocks perform well post buybacks, but in the run-up to the buyback, stocks have on average underperformed. Among all the stocks listed in Asia-ex, on average only about 17% do buybacks and then the average percentage of shares outstanding that is bought back is a mere 2%.

Compare that to dividends: in Hong Kong, 93% of companies pay dividends and in Singapore, that number is 100%.

Source: Citi
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Re: Buybacks ( General News )

Postby winston » Fri Mar 16, 2012 8:05 am

Share Buybacks: A Buy Signal You Can’t Ignore By Alexander Green

There are a number of signals that bode well for price appreciation with individual stocks: growing market share, rising sales, strong earnings growth and improving margins…

But you shouldn’t overlook another excellent indicator: share buybacks.

According to Standard & Poor’s, U.S. public companies spent at least $437 billion last year buying their own shares back. That was 46% more than in 2010.

Is this a good thing? Absolutely…

http://www.yolohub.com/trading/share-bu ... ant-ignore
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Re: Buybacks ( General News )

Postby iam802 » Fri Mar 16, 2012 8:14 am

Share buybacks?

Do you think mgnt. has the ability to time the market?



Read article from McKinsey https://www.mckinseyquarterly.com/The_s ... hares_2869

Notes:
Companies allocate most amount for share buybacks when the stock price is at its highest.

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Re: Buybacks ( General News )

Postby winston » Sun Jul 01, 2012 8:17 pm

Two Stock Market Buy Signals You Shouldn’t Ignore by Alexander Green

There are a number of signals that bode well for price appreciation with individual stocks: growing market share, rising sales, strong earnings growth and improving margins…

But you shouldn’t overlook another excellent indicator: share buybacks.

According to Standard & Poor’s, U.S. public companies spent at least $437 billion last year buying their own shares back. That was 46% more than in 2010.

Is this a good thing? Absolutely…

The other thing to watch is the exercise of stock options, as mentioned above. If a company is only buying back enough shares to offset the dilution that occurs when executives exercise stock options, you won’t see the buyback boost earnings per share.

But, generally speaking, share repurchase programs are a decided positive.


http://www.investmentu.com/2012/June/buy-signals.html
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Re: Buybacks ( General News )

Postby winston » Tue Jan 29, 2013 7:10 am

Are Stock Buybacks Always Bullish for Share Prices? By Louis Basenese

A Better Bullish Indicator: Buybacks And Insider Buying

Like I said before, a repurchase program signals that management thinks shares are undervalued. But if executives truly believe shares are cheap, wouldn’t they start buying shares in their personal accounts, too?

Turns out that if they do, shares perform even better.




http://www.yolohub.com/trading/are-stoc ... are-prices
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Re: Buybacks ( General News )

Postby winston » Wed May 29, 2013 6:30 am

Corporate Share Buybacks: How Timely Are They?

Here is my favorite chart in the series.

Aggregate Buybacks: Dollar-value share repurchases amounted to $93.8 billion over the fourth quarter and $384.3 billion for 2012. The fourth quarter total is in-line with that of Q3, but represented year-over-year growth of 9.6%.

Sector Trends: The Information Technology and Health Care sectors spent the most on quarterly repurchases ($19.8 billion and $14.4 billion, respectively) in Q4 2012. However, of the sectors that averaged $2 billion or more in quarterly share repurchases since 2005, the Industrials sector showed the largest sequential and year-over-year growth (30.6% and 59.4%) in dollar-value buybacks.

Buyback Conviction: Dollar-value buybacks amounted to 79.1% of free cash flow on a trailing twelve month basis, which is the largest value since Q3 2008. The Consumer Discretionary and Consumer Staples sectors both spent more than 100% of their free cash flow (116.7% and 114.2%, respectively). The Energy and Utilities sectors spent $35.8 billion and $1.4 billion, respectively, on buybacks, despite generating negative free cash flow (-$25.7 billion and -$23.5 billion). The Consumer Discretionary sector also led all sectors in repurchasing the most shares relative to its size. Over the trailing twelve months, the sector repurchased shares that amounted to 4.5% of the sector’s average shares outstanding over the year.
Timing Suspect at Best

One look at the above chart is all it takes to see most shares are bought back at high prices rather than low prices.

Why? Share prices certainly are not cheap.

Much of the buybacks are in conjunction with massive shareholder dilution via stock option grants to executives. The executives continually unload their shares and corporations buy them back.

Buybacks from the last two years generally look good, at least right now. But for how long? 2006 and 2007 buybacks looked good too, up until the crash.

Is this yet another case of "here we go again?"


Read more at http://globaleconomicanalysis.blogspot. ... E8xqlKK.99
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Re: Buybacks ( General News )

Postby winston » Mon May 19, 2014 6:52 am

One of the Best Stock Market Signals You Can Get

by Alexander Green

In the first four months of this year, U.S. companies bought back $255 billion worth of their own shares.

That is no small sum, but it is significantly less than the $355 billion worth they purchased in the same period last year. The declining pace of buybacks has some analysts fretting that this is a bearish signal.

It's not. The important question is not the aggregate amount of buying but rather "who is buying and how much?"

Academic studies have consistently found that the average stock not only rises immediately after the announcement of a repurchase program but continues to beat the market for several years.

The correlation between buybacks and stock outperformance is not hard to understand. There are two primary reasons.

The first is when management feels so strongly that the company's shares are mispriced that they are willing to invest hundreds of millions of dollars of the company's money to repurchase the stock in the open market, they are essentially betting their jobs that the company's shares are undervalued.

I say that because those responsible for the decision are unlikely to keep their seats in the boardroom if the stock finishes the buyback period significantly lower than it was at the beginning.

The other reason is mathematical. When you divide earnings by a smaller number of shares outstanding, you get higher earnings per share. And that's what ultimately drives share prices northward.


Source: Wisdom of Wealth

http://www.investmentu.com/article/deta ... 3k0t3YlS1c
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Re: Buybacks ( General News )

Postby winston » Sun Jun 01, 2014 7:30 am

[b]Stock Buybacks Can Keep the Bullish Rally Going[/b
]
There's plenty of fuel left from buybacks

By John Jagerson and Wade Hansen

Source: SlingShot Trader

http://investorplace.com/2014/05/stock- ... 4pkQ3Y0OZQ
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