“If you need a reason to be in stocks right now,” says a recent Barron’s article, “you can look no further than the growing tidal wave of share repurchases.”
By reducing share count, the article explains, share buybacks typically support prices and boost earnings per share. “Indeed,” it adds, “shares of companies with big buybacks have historically outperformed the market.” S&P 500 companies, the article notes, are on track to announce $650 billion worth of buybacks this year (compared to the previous record of $589 billion in 2007).
Even in a rising interest rate environment, the article says, the effective yield on stocks looks attractive. The math excites Warren Buffett who, earlier this year, told CNBC, “If you had to choose between buying long-term bonds or equities, I would choose equities in a minute.”
There is some debate as to whether buybacks buoy share prices over the long term, the article notes, or whether companies would be better served by using extra cash for capital investment. It says, however, “No matter how you answer that, there is little evidence that big companies making buybacks are skimping on capital spending.” Citing the examples of Apple, Berkshire Hathaway and Alphabet, the article discusses buyback strategies and the implications for investors.
The article concludes: “While it has been cresting for a while, it’s not too late to ride the buyback wave. Investors can still catch it through stocks like Apple, JPMorgan, and Citigroup, or by considering Alphabet and Berkshire—two strong fundamental stories—that could benefit from more aggressive buyback programs.”