Are These Buybacks Wasting Your Money?
Feb 17th 2012 4:08PM
Updated Feb 17th 2012 4:10PM
Stock buybacks are generally considered a bullish signal on Wall Street. They return capital to shareholders, while declaring management's belief that its own cheap shares are its best return on investment. As long as profits remain consistent, share repurchases can even increase earnings per share, by dividing the same amount of earnings among a smaller pool of shares outstanding.
Today, we'll find a few companies that announced new or expanded stock buyback programs, then consult Motley Fool CAPS to see which of those firms the 180,000-strong investor community favors most. If CAPS' top investors endorse the prospects of companies announcing buybacks, maybe Fools should take notice.
Here are two of the latest companies to announce share repurchase programs over the last month:
CAPS Rating (out of 5)
New or Expanded
|Seagate Technology (NAS: STX)||*****||$1.0 billion||Expanded|
|Visa (NYS: V)||***||$500 million||New|
Source: Company filings. Amount represents additional authorization for expanded buybacks.
But don't forget, Fools -- a company isn't obligated to repurchase shares just because it announced its intention to do so. So don't use this list as a reason to buy. Instead, use it as a launching pad for additional research.
Storing up growth
As tiresome as it might be at this point, you can't talk about Seagate Technology today without mentioning the huge boost its business got as a result of last year's Thai floods. The floodwaters hurt rivals such as Western Digital, leaving an opening for Seagate to barrel through since its own facilities went virtually unscathed.
The hard disk drive maker has exploited the opportunity beautifully so far, enjoying higher profits from the shortage that was created in the market even if its own products were never at risk, and allowing it to ink a long-term supply contract from big customers who are usually only too willing to let the drive makers slash each other's throats in pricing wars. Moreover, market analysts at IHS iSuppli say HDD sales will fall 13% in the first quarter followed by a 5% drop in the second. It won't be until the third quarter that they rebound.
While we're not in danger of seeing HDDs disappear anytime soon, solid-state drives are growing in importance. Manufacturer OCZ Technology (NAS: OCZ) , which went all-in on the market by abandoning the DRAM market and doubling down by enhancing its system-on-a-chip business, is one example of a tech stock to watch in the future.
Seagate offers solid-state storage devices, too, so it seems positioned to benefit from the emerging trend while still catering to legacy HDD needs. CAPS member Wakester0 also thinks its prospects remain bright for the foreseeable future.
In the short term, with Seagate locking up contracts for their hard drives at higher prices (and until production at harder hit manufacturers like Western Digital rises up again), I like the prospects
Tell us in the comments section below or on the Seagate Technology CAPS page how long it will benefit from the misery of others, then add the storage specialist to your watchlist to see if it's left the competition out to dry.
The growing importance of the "mobile wallet" and the threat it poses to Visa's dominance can be seen in the sniping the credit card transaction processor is taking at PayPal.
The eBay (NAS: EBAY) subsidiary is testing a mobile payment system at Home Depot that will allow customers to use their PayPal accounts instead of a credit card to make purchases. It's expected to roll out the service to some 2,000 stores next month.
Visa tried to scare customers into not using PayPal by suggesting it would open up customers to fraud. PayPal countered that its service is more secure than a credit card in your wallet. Both realize the stakes involved are high if customers can break through the mindset of using credit or debit cards to complete transactions. As CAPS member HayZeus notes, "America runs on Debit, come on.....who pays cash for anything anymore."
While PayPal might not see the 20,000 transactions-a-second volume that Visa says it can handle, any bit of incremental business it can get bolsters its own business and takes a small bit of share away from Visa, MasterCard, or American Express. PayPal can only gain by the development.
Visa faces other competitors, too, including Google (NAS: GOOG) , which is looking to use near-field communications to turn your smartphone into your wallet. So add Visa to your watchlist to see if it can turn back these upstarts from making inroads into its domain.
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At the time this article was published Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Western Digital, MasterCard, and Google. Motley Fool newsletter services have recommended buying shares of eBay, Home Depot, Google, and Visa, as well as writing a covered strangle position on American Express and writing puts on eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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