Cash for stock buybacksWhen IBM (IBM) raised its stock buyback authorization by $10 billion on Oct. 26, it became the 259th company to announce repurchase plans in October alone. And by the reckoning of analysts at Citigroup's Citi Investment Research, the long-term trend of rising share repurchases has only just begun.

Companies are sitting on a record $2 trillion in cash, and debt is cheap in today's low-interest-rate world, but companies were frenetically soaking up their own stock before the financial crisis interrupted two years ago. At its 2007 peak, companies bought back 5% of their market capitalization, according to Citi Investment Research. Today, that figure stands at just 1.5% -- but it's primed to grow again.

"Global markets equitized again in 2009 as a result of distressed equity issuance amongst the financials," wrote Citi analyst Michael Geraghty in a recent report to clients. "However, we suspect that this is temporary and de-equitization is coming back. Low equity valuations, surplus cash flows, and negligible cost of debt financing should spur a meaningful reduction in share counts."

Buybacks are great if you believe the company's stock price is too low. Earnings per share goes up as the number of shares outstanding goes down, for one thing, and it's good to know there's a ready buyer for a company's equity when many of its traditional shareholders, such as pension funds and small investors, are sellers, Geraghty notes.

To help investors take advantage of the share-buyback theme, Citi constructed a global portfolio of buy-rated companies that have consistently bought back their own equity over the past five years. Here are top 10 U.S. picks from that portfolio.

  • AmerisourceBergen (ABC)
  • Amgen (AMGN)
  • Ball (BLL)
  • Comcast (CMCSA)
  • Deere (DE)
  • Fiserv (FISV)
  • Lockheed Martin (LMT)
  • Omnicom Group (OMC)
  • Target (TGT)
  • Texas Instruments (TXN)

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Gumby

Stock buybacks is a signal to dump the stock!! The savvy shareholders get all the money from buybacks .. Those still holding the stock will see the price drop! What is preferable is simply reverse split so everyone get fewer shares all together while preserving cash. Stocks split in the past and they can reverse split , too which makes more sense! Stock buybacks occur because there is too many shares in the stock from past splits.. What is more,, if the company decide to buy back , it ought to do so during the lows not during the climb phase. Shareholders can be asked to vote to approve cash set asides for buybacks during recession period . it is too late to buy back stocks . The Dow is at 11000 already.. They should have done them whle Dow was in 7000 or lower.

October 29 2010 at 10:27 AM Report abuse rate up rate down Reply
Robert & Lisa

The demoncrats take more and more from we the people, not realizing they, like parasites will eventually kill the host animal (our country) and as a result themselves. Stupidity reigns supreme.

October 28 2010 at 5:16 AM Report abuse +1 rate up rate down Reply
curryflawlibs

thats not money, thats counterfit money printed and borrowed by hussein barry and ben bernanke.

October 27 2010 at 7:50 PM Report abuse rate up rate down Reply
sjlatty

If I already own the stock, I would appreciate this action. This is an artificial way to keep the stock price up so I can sell into a known purchaser. As a Corp. insider, this makes my options more valuable (screw the shareholder). As a possible new purchaser of the stock, I NEVER buy a stock, in the open market, where my price competition is the company doing a BuyBack. That is insane. I my opinion, BuyBacks should be illegal

October 27 2010 at 7:41 PM Report abuse rate up rate down Reply
Gumby

A COMPANY HAVE TO PUT CASH ASIDE TO PREPARE FOR ANY STOCK BUYBACK AT THE BEST TIME NOT ANY TIME . NONONONONO!!!!! IT IS HARD TO PUT CASH ASIDE WHILE WORKERS WILL ASK WHAT THAT CASH IS FOR.....

October 27 2010 at 1:41 PM Report abuse rate up rate down Reply
Gumby

IF A COMPANY WANT TO BUY BACK SHARES , THEY MUST BUY BACK AT THE LOWEST PRICES THEY CAN GET BUT THEY OFTEN BUY BACK ON MOMENTUM THIS IS STUPID... THE MANAGEMENT CAN ASK YOU TO VOTE TO APPROVE A CASH SET ASIDE FOR BUYBACK AT THE MOST OPTIMUM PRICES OFTEN DURING RECESSIONS . NEVER BUY BACK SHARES DRUING RECOVERY WHEN PRICES IS HIGEHR , YOU BUY BACK FEWER SAHRES THAT WAY.. STUPID STUPID !!!!!!!!!!!!!!!

October 27 2010 at 1:40 PM Report abuse rate up rate down Reply
Gumby

COMPANIES SPLIT STOCK THEN END UP HAVING TO PAY CASH TO BUY BACK SHARES.. THIS IS THE STUPIDEST THING TO DO!!!!!!!!!!! SOMETIMES THE MANAGMENT WILL DO ANYTHING TO DENY YOU CASH AS IN DIVIDENDS AND RAISES... THEY ARE PROMISING YOU BETTER EARNINGS ON FEWER SHARES WHICH RARELY HAPPENS... OFTEN COMPANIES BUY BACK SHARES BECASUE THEY HAVE NO FUTURE IN GROWTH..

October 27 2010 at 1:38 PM Report abuse rate up rate down Reply
Gumby

REVERSE SPLIT NOT STOCK BUYBACK!!!! REVERSE SPLIT NOT STOCK BUYBACK!!!! REVERSE SPLIT NOT STOCK BUYBACK!!!! REVERSE SPLIT NOT STOCK BUYBACK!!!! REVERSE SPLIT NOT STOCK BUYBACK!!!!

October 27 2010 at 1:36 PM Report abuse rate up rate down Reply
Gumby

stock buybacks is a sign that the company is not growing anymore so smart shareholders sell shares and get out . those left holding are thinking that they will see higher earnings which is not always likely.. It is best to reverse split shares since most stocks split in the past so reverse split .... to get the number of outstanding shares down without any cost or cash! Sure you will get less shares but the company will still be stuck with cash that they will be forced to pay you higher dividends...

October 27 2010 at 1:36 PM Report abuse rate up rate down Reply
Gumby

Why buy back??? Better revers split 5 to 4 or 4 to 3 sure you will get less shares but the results is the same! Even if with cash buybacks, you still lose all the same unless you sold your shares to the buyback.. Stock buybacks is the nuttiest idea I know of ... really NUTTY!!!!!!!!!!!!!

October 27 2010 at 1:33 PM Report abuse rate up rate down Reply