Companies Investing Right Along With You
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 draw up a list of companies that have announced new or expanded stock-buyback programs and then consult Motley Fool CAPS to see which of those companies the 180,000-strong investor community favors most. If CAPS' top investors endorse the prospects of companies that are announcing buybacks, maybe Fools should take notice.
Here are some of the latest companies to announce share-repurchase programs over the past month.
CAPS Rating(out of 5)
New or Expanded
|GT Advanced Technologies (NAS: GTAT)||***||$100 million||New||$7.67|
|Intel (NAS: INTC)||*****||$10 billion||Expanded||$24.29|
|OmniVision Technologies (NAS: OVTI)||*****||$100 million||New||$12.33|
Sources: company filings, Motley Fool CAPS.
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 by itself, but rather use it as a launching pad for additional research.
Shining a light on growth
Solar-manufacturing equipment maker GT Advanced Technologies isn't going to wait around for other investors to buy up its shares: Starting today, it's going to be using $75 million of its new $100 million buyback authorization for an "accelerated repurchase." The remaining $25 million will be used to opportunistically buy back shares, either on the open market or through private sales.
As a number of solar-energy companies such as LDK Solar (NYS: LDK) and Suntech Power (NYS: STP) are forecasting slack sales and profits, it's not surprising that polysilicon equipment maker GT is getting burned, too. Its shares have been cut in half since the summer, but with about 45% of its $2.1 billion backlog coming from its sapphire manufacturing business, along with its strong cash flows and solid fundamentals, GT's CEO may just be right that not only is the stock undervalued, but also a buyback just makes "good economic sense."
With 94% of the CAPS members rating GT to outperform the broad indexes, it's likely they see its depressed stock as a glittering opportunity. Let us know in the comments section below or on the GT Advanced Technologies CAPS page whether you think this is a diamond in the rough or just a paste knockoff, and add the stock to your watchlist to see whether the buyback moves the needle.
No Speedy Gonzales
With interest rates as low as they are, debt is a pretty attractive investment right now. According to the Federal Reserve's most recent figures, total nonfinancial business debt was just over $11 trillion and was growing at a rate of 4% annually at the end of the second quarter.
There are definitely good reasons for taking on debt for various corporate purposes, even buying back stock or paying dividends. A company like Microsoft that's sitting on some $56 billion in cash and investments certainly has the wherewithal to finance its debt, and with the tax benefits that come from servicing the debt, it could even improve its overall financial position. But companies don't get into trouble because they have too much cash in the bank; it's when they burden themselves with debt that fault lines are revealed.
In the release announcing Intel's buyback plan, it noted that it recently closed a $5 billion debt offering whose primary purpose was to fund the share repurchases. Its $10 billion program will raise the total unused authorization balance to $14.2 billion. Now Intel is one company that shouldn't have a problem financing the debt it took on to pay for this. Last quarter, it generated approximately $6.3 billion in cash from operations, paid out $1.1 billion in dividends, and spent $4 billion buying up 186 million shares of stock.
CAPS member BinyaminK says Intel won't outrun any of the smaller hares it competes against in the short term, but it will endure over the long run: "This is a 'Giant Tortoise Stock.' Like a giant tortoise, It may be big and slow, but it has a hard shell (economic moat), can swim far (enter into new and emerging markets and industries), and live long.
Tell us on the Intel CAPS page or in the comments section below whether you think taking on debt was a good, strategic move, and then add it to your watchlist to see how it plays out.
A blurry picture
Turns out analysts were spot-on for fretting over OmniVision Technologies' loss of business to Sony (NYS: SNE) for Apple's (NAS: AAPL) new iPhone 4S after ChipWorks pried open the new phone and found a Sony logo inside. The stock took a hit over the revelation, and it got knocked down further when it also revealed that other customers were cutting back orders and it was lowering its already-reduced guidance.
OmniVision's management sounded a just-as-confident note as GT's CEO did in saying the depressed price made the stock undervalued, but it wasn't necessarily moving forward on buying back its shares right away. Unlike Intel, though, it doesn't appear to be taking on debt to finance any coming repurchase.
In fact, OmniVision used its time as Apple's top CMOS chip sensor maker to sock away money and now has 10 times more cash on its balance sheet than debt. That's part of the reason Jeffrey2012 sees this as a time to buy.
the only thing I do not like about this company is the way they keep diluting the shareholders with increasing share sales. But since almost their entire market cap is in cash: 506 million of 774 million market cap doesn't make me worried about this company going out anytime soon. Their business hiccups with the iphone 4s does not mean they won't have anymore business.
Add OmniVision to the Fool's free portfolio tracker to see whether this becomes a picture perfect chance for it to exceed expectations.
You've heard from your fellow investors -- now it's your turn. Start your research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page. Sign up for CAPS today, and share your best pitch for why a company's stock buyback is a reason for you to buy, too -- or not!
At the time this article was published Fool contributorRich Dupreyowns shares of Intel, but he holds no other position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Apple, Intel, and Microsoft and has bought calls on Intel.Motley Fool newsletter serviceshave recommended buying shares of and creating bull call spread positions on Intel, Apple, and Microsoft. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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