10 Stocks Poised To Outperform On Record Buybacks

Corporate buybacks are a major driver of stock prices, so it's no wonder that many investors are bullish that buyback announcements are proceeding at a torrid pace this year. The main driver: Republicans' tax reform bill which is spurring the repatriation of overseas cash. Through February 15, share buybacks totaling $170.8 billion have been announced, eclipsing the previous record for the first 46 days of a year, which was $147.2 billion in 2016, CNBC reports. Robust buyback action may buoy a stock market that's seeing a rise in volatility amid concerns over inflation, Fed rate hikes and other concerns. "It acts as a floor, you have a natural buyer in there," is what Jeff Rubin, director of research at Birinyi Associates, told CNBC. Corporations have been the heaviest buyers of their own stock for a number of years.

Biggest Buyers

CNBC lists the ten companies with the largest share repurchase announcements made in 2018 through February 15. They are listed below along with their: stock performance year-to-date, over the past year through early trading on February 20, and the amount of buybacks announced:

  • Cisco Systems Inc. (CSCO): +16.0% YTD, +31.6% 1-year, $25 billion buyback
  • Wells Fargo & Co. (WFC): +0.3% YTD, +4.7% 1-year, $22.6 billion buyback
  • PepsiCo Inc. (PEP): -8.4% YTD, +1.6% 1-year, $15 billion buyback
  • Amgen Inc. (AMGN): +5.5% YTD, +5.9% 1-year, $10 billion buyback
  • Alphabet Inc. (GOOGL), the parent of Google: +5.0% YTD, +30.7% 1-year, $8.6 billion buyback
  • Visa Inc. (V): +7.3% YTD, +39.9% 1-year, $7.5 billion buyback
  • eBay Inc. (EBAY): 15.3% YTD, 28.9% 1-year, $6 billion buyback
  • Applied Materials Inc. (AMAT): +10.3% YTD, +58.0%, $6 billion buyback
  • Mondelez International Inc. (MDLZ): +2.7% YTD, +3.4% 1-year, $6 billion buyback
  • Lowe's Companies Inc. (LOW): +3.3% YTD, +25.1% 1-year, $5 billion buyback

Not only do buybacks increase demand for shares in the short run, but they also raise reported EPS in the future by shrinking the number of shares outstanding. Birinyi's Rubin also told CNBC, "At the end of the third quarter, companies had dry powder of over $800 billion," referring to funds available for buybacks but left unspent. Data on actual repurchases made in the fourth quarter are not yet available, CNBC says.

Goldman Sachs Group Inc. has observed that the recent stock market correction, in which the S&P 500 Index (SPX) dropped by 10.2%, was intensified by mandatory blackout periods on discretionary share repurchases that precede earnings announcements. That trend is reversing itself. Now that these restrictions are largely over, stock buybacks are commencing again. (For more, see also: 12 Stocks To Buy For Market's Upturn: Goldman Sachs.)

Bad Rap For Buybacks

This optimism over buybacks comes as the Investopedia Anxiety Index (IAI) continues to register extremely high levels of concern about the securities markets among millions of Investopedia readers across the globe. 

And among some investors, especially smaller savers, stock buybacks don't have a particularly good reputation, according to CNBC reporter Rick Santelli, in a December commentary. The gist of his argument was that the average investor does not observe a tangible benefit from share repurchases. As a means for returning capital to shareholders, buybacks are an alternative to increased dividends, which are quite tangible. However, while buybacks are designed to increase share prices by reducing the share base, it is difficult, if not impossible, to determine the precise dollar impact. Nonetheless, given the double taxation of dividends, share repurchases can be a more tax-efficient means of returning capital to shareholders.

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