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.
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.