This article was originally published on Forbes
Just a few years ago, stock buybacks were a political punching bag. Ultra-low interest rates and borrowing costs, courtesy of the Federal Reserve, were contributing to the record-breaking buyback levels. Rather than investing in capital expenditures, new product developments or employees, companies were repurchasing their shares. Buyback opponents argued this fueled inequality as companies shifted capital away from job creating investments and more into financial capital allocations. The anti-buyback rhetoric has since died off to some extent, companies are still fueling buybacks at record levels.
Given that buybacks have typically been a strong positive for shareholders, I wanted to look at some of the firms that have reduced their share count the most over the past few years—we’re calling them Buyback Monsters—and lets augment the buybacks with value in an effort to identify those companies that have significantly reduced their share count and look attractive based on a series of value factors.
With looming inflation and rising interest rates on the near term horizon, having exposure to value stocks could be important for many investors, and this list offers a good place to start.
Buffett on Buybacks
Warren Buffett, CEO of Berkshire Hathaway, is on record at a 2004 annual meeting saying this about buybacks: “When stock can be bought below a business’s value it is probably the best use of cash.” Berkshire has been buying back its stock and Apple, the largest position in Berkshire’s portfolio, has also been aggressively buying back its stock over the past few years. Since 2012, the company has spent $467 billion buying back stock. It’s no wonder that a report by S&P calls the company the “poster child” for share buybacks. Two great companies buying back their stocks and there are many other examples in the market of companies aggressively buying back stock and the list below offers some of those up as investing ideas.
It’s important for investors to remember what buybacks do for existing shareholders. When a company buys back its stock, it is effectively removing those shares from the market. This in turn makes earnings per share go up. A company may not be more profitable, but on a per share basis, each remaining share in the market is entitled to more of the profits. As a result, current owners of the shares are entitled to more earnings per share over time. But not all companies are good at timing share repurchases, and if buybacks are done at inopportune times, this can result in destroying shareholder value, not adding to it. This is why the Buffett quote above is important, and why the addition of our value filter in the list below also is.
15 Buyback Monsters With Value
Using the tools and data on Validea.com, we’ve identified some of the companies that have reduced their share count over the last five years materially and that score in the first or second percentile based on our value composite model, which ranks stocks based on a series of value factors. The best scoring stocks are in the table below. The table also includes shareholder yield, which is the buyback yield over the past 12 months plus dividend yield and debt paydown yield. Use this list as starting point to find those companies aggressively reducing share count that still have value stock qualities in today’s market.
| Ticker | Name | Sector | Industry | Recent Price | Value Value Rank | Shareholder Yield | 5 Year Decrease in Shares Outstanding |
| LBTYA | LIBERTY GLOBAL PLC | Services | Broadcasting & Cable TV | 28.27 | 1 | 23% | -41% |
| BIG | BIG LOTS, INC. | Services | Retail (Specialty) | 36.99 | 1 | 24% | -27% |
| HPE | HEWLETT PACKARD ENTERPRISE CO | Technology | Computer Hardware | 17.35 | 1 | 19% | -24% |
| FL | FOOT LOCKER, INC. | Services | Retail (Apparel) | 44.4 | 1 | 9% | -22% |
| RLGY | REALOGY HOLDINGS CORP | Services | Real Estate Operations | 16.94 | 1 | 20% | -19% |
| GPI | GROUP 1 AUTOMOTIVE, INC. | Services | Retail (Specialty) | 166.32 | 1 | 20% | -14% |
| RFP | RESOLUTE FOREST PRODUCTS INC | Basic Materials | Paper & Paper Products | 12.3 | 1 | 19% | -13% |
| VOYA | VOYA FINANCIAL INC | Financial | Investment Services | 72.41 | 2 | 12% | -45% |
| AMCX | AMC NETWORKS INC | Services | Motion Pictures | 42.98 | 2 | 28% | -42% |
| TPH | TRI POINTE HOMES INC (DELAWARE) | Capital Goods | Construction Services | 22.48 | 2 | 4% | -30% |
| LPG | DORIAN LPG LTD | Transportation | Water Transportation | 12.44 | 2 | 16% | -26% |
| AVT | AVNET, INC. | Technology | Electronic Instr. & Controls | 40.61 | 2 | 13% | -24% |
| NRG | NRG ENERGY INC | Utilities | Electric Utilities | 40.13 | 2 | 10% | -23% |
| HVT | HAVERTY FURNITURE COMPANIES, INC. | Consumer Cyclical | Furniture & Fixtures | 29.04 | 2 | 7% | -22% |
| STLD | STEEL DYNAMICS, INC. | Basic Materials | Iron & Steel | 61.34 | 2 | 6% | -19% |
