Stock buybacks are hardly a sure-fire recipe for boosting share prices even though Corporate America is on track to return a record $650 billion of cash to shareholders through share repurchases this year. That's because stock valuations, earnings growth and other factors can mitigate, even erase, buybacks' potential positive impact. With that in mind, Barron's has applied a screening method to identify stocks with big share repurchase programs that are most likely to get a boost. They came up with 27 stocks, including these 10: Apple Inc. (AAPL), Citigroup Inc. (C), Delta Air Lines Inc. (DAL), Amgen Inc. (AMGN), Marathon Petroleum Corp. (MPC), Kroger Co. (KR), Discover Financial Services (DFS), United Continental Holdings Inc. (UAL), MetLife Inc. (MET) and Lennar Corp. (LEN).
Share repurchases can make a good stock even better, but they cannot turn a poor investment into a good one, according Barron's. Meanwhile, the magazine cites research finding that stocks with reasonable valuations are most likely to see a marked improvement in returns from a buyback program. Accordingly, they screened for stocks that have a forward P/E ratio of less than 15 times projected earnings over the next four quarters, in addition to estimated buybacks in the current fiscal year that will equal 5% or more of these companies' market capitalizations, called buyback yield in the table below. These 10 companies are expected to follow through, unlike many that announce buybacks but never fully implement them.
Record First Quarter
Companies in the S&P 500 Index (SPX) spent a record $178 billion on share repurchases in the first quarter of 2018, surpassing the old record of $172 billion set in the third quarter of 2007, according to research by Howard Silverblatt of S&P Dow Jones Indices, as cited in another Barron's story.
Tech stocks may also get a boost from repurchases though their high valuations might limit the impact. Per S&P Dow Jones Indices, the technology sector accounted for the entire 2.56% total return (price appreciation plus dividends) registered by the S&P 500 for the year-to-date through May 16. The big tech companies have been leading beneficiaries of tax reform, particularly regarding the tax breaks offered on the repatriation of their massive holdings of overseas cash. Much of this cash is being returned to shareholders. Tech companies' outlays on stock buybacks more than doubled in the first quarter on a year-over-year basis and they contributed more than 34% of the total S&P 500 spending on buybacks during the quarter.