Share Buybacks Down Plus Five Picks

Although share buybacks boost earnings-per-share for investors, companies are slowing it down of late, writes Validea CEO John Reese in a recent article for Nasdaq.

Reese cites a recent Barron’s article that says: “As with many games, this one has gone on for too long, as companies borrowed heaps of cash not to fund future growth, but to reduce their share count even further.”

One reason for the slowdown, Reese says, is that share valuations are higher. “The move only makes sense,” writes Reese, “if the shares are being repurchased at a reasonable price.”

Share buys

Using stock screening models he created based on the strategies of Buffett, Peter Lynch and others, Reese identified five high-scoring companies (based on valuations, profitability and quality metrics) that have also been active in share repurchasing:

  • Apple Inc. (AAPL), the tech giant, earns high marks for earnings predictability, return-on-equity and cash flow-per-share, as well as the number of outstanding shares compared to the market average.
  • General Electric Company (GE), the global industrial giant, scores well based on trailing 12-month sales, dividend yield, and price-earnings ratio.
  • Microsoft Corporation (MSFT), the technology company, gets a thumb’s up for cash flow-per-share, revenue base, and stock price performance.
  • Allergan PLC (AGN) is a specialty pharmaceutical company engaged in the development, manufacturing, marketing and distribution of brand name and over-the-counter pharmaceutical products. The company earns high marks for its book-market ratio and operating cash flow.
  • Citigroup Inc. (C) provides a range of financial products and services, and scores well for its sales volume, cash flow-per-share and price-earnings ratio.