You have to be impressed with the recent 30% six-month rally for chipmaker Intel (Nasdaq:INTC).

For a company that was already worth more than $130 billion this past winter, such rapid upside is a rare feat. Credit goes to improving demand for its chips -- but this stock is also getting a nice lift from a move to add another $20 billion to an ongoing share buyback programs.

Intel has already shrunk its share count by more than 10% over the past three years, and this move could deliver another 10% reduction in shares outstanding. (It would have been wiser to be more aggressive when shares were really washed out a year ago, but that's a discussion for another day.)

In a similar vein, shares of Cisco Systems (Nasdaq:CSCO) are up an impressive 60% over the past two years, and Cisco has also been a bold acquirer of its own shares: The networking giant has shrunk it share count by more than 1.3 billion over the past eight years, and investors have to come to appreciate the profound impact such a move has on per-share profits.

These buyback kings will soon have company. Three major firms are on the cusp of big buyback plan announcements, and investors stand to profit handsomely.


Though this insurer is up 13% since I recommended it eight months ago, I had been expecting much more upside. Management was expected to eventually deliver a huge program, though a subsequent $2 billion move in June was seen as too tepid by many analysts. AIG can do so much better in terms of buybacks. The insurer generates $8 billion in annual free cash flow, augmented by a recent $7.6 billion asset sale.

Not only is this insurer flush with cash, but AIG's tangible book value now approaches $72 a share, well above the current $55 stock price. While that anomaly exists, AIG should -- and will -- deliver ever-larger share buybacks. Analysts at Barclays predict AIG will buy back $7 billion in stock in 2015.

To be sure, AIG's management is still treading slowly as it regains the trust of regulators. Management has consistently said that rebuilding its capital base is the top priority. But at some point, perhaps in the next few quarters, management will have to concede that the surging cash balance has become sufficient and a lot more of the annual free cash flow can be returned to shareholders. (You could argue that the dividend, which currently yields less than 1%, will get a lot more attention, but while shares trade so far below tangible book value, investors should greatly prefer buybacks.)

2. Citigroup (NYSE: C)

citi-bank.jpgThis mega-bank would love to pursue aggressive buybacks, especially since shares trade at an 11% discount to tangible book value (which itself is rising at a fast pace). But regulators keep putting the kibosh on Citigroup's planned buybacks. Yet there is a growing consensus that the next time Citigroup goes hat in hand to regulators, it will finally get the green light.

That process may come early next year, at which time analysts at Merrill Lynch thinks shares will shed their price-to-book discount and trade right up to book value. Notably, they see tangible book value rising all the way to $69.65 by the end of 2016, well above the current $50 share price.

So why does this bank continue to trade below tangible book when almost all other major banks now trade at a premium to book value?: "We believe C is one of the more misunderstood banks in that investors view outsized risk in its international operations, but overlook the company 's EPS leverage to a U.S. economic recovery," suggest Merrill's analysts, adding that "despite capital return at C pushed out following the Fed's stress test results, the capital return story remains intact and investors should have confidence in C's ability to increase its pay out over time."​

3. Google (Nasdaq: GOOG)

Now that Intel, Cisco, Microsoft (Nasdaq: MSFT), Apple (Nasdaq: AAPL) and many other tech firms are growing more comfortable with buybacks, it's Google's (Nasdaq: GOOG) turn.

Despite a heavy slate of R&D (research and development) and capital spending, Google routinely generates more than $10 billion in annual free cash flow. Cash on hand now exceeds $60 billion, and unless Google is contemplating a whopper of an acquisition (which is not the company's style), then look for the chorus of buyback seekers to grow louder. (Two-thirds of Google's cash is parked overseas, but companies get around that by raising debt domestically to offset that foreign cash.)

It's hard to pinpoint the right moment when Google will open up the buyback spigot, but as the cash balance surges with each passing quarter, it is only a matter of time. A $15 billion annual buyback could be paid for mostly out of free cash flow, and only make a small annual dent in that considerable cash flow.

Though such a move would shrink shares outstanding by less than 5%, it would help establish a trend that other buybackers already know: A modest reduction in the share count can help earnings per share (EPS) grow at a faster pace than sales or net income.

Risks to Consider: Buybacks pursued at market peaks can look ill-timed in hindsight, so these massive buybacks will look only savvy if the market continues to march higher.

Action to Take --> As we've noted on a number of occasions, companies that buy back lots of stock tend to outperform the market. Perhaps it's the boost to EPS that buybacks provide. Perhaps it's the vote of confidence conferred by management in the company's future health. Whatever the reason, investors should keep tracking the company's poised for major buybacks -- and AIG, Citigroup and Google are all on the clock.


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