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 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's top investors endorse the prospects of companies announcing buybacks, maybe Fools should take notice.
Here are two of the latest companies to announce expanded share repurchase programs over the last month:
CAPS Rating (out of 5)
New or Expanded
|Lear (NYS: LEA)||*****||$300 million||Expanded|
|Macy's (NYS: M)||**||$1 billion||Expanded|
Source: Company releases. Amounts reflect dollar value of expansion.
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 by itself as a reason to buy; rather, use it as a launching pad for additional research.
China's meteoric economic growth, while amazing, cannot last in perpetuity and we've already seen signs of contraction. Its jewel has arguably been the auto industry, which has grown at double-digit rates annually for the past two decades, and though the country logged 18.5 million vehicles sold in 2011 -- thus remaining the world's largest market -- growth is stalling badly, as sales were up just 2.5% last year.
Auto parts supplier Lear, with a more global customer base than many of its rivals, derives 45% of its revenues from China and Europe, while just 17% comes from North America. The slowing global economy and financial uncertainty are obviously a concern and help explain why it forecasts European production and sales growth will fall below Wall Street's expectations this year.
American Axle & Manufacturing (NYS: AXL) , on the other hand, is more U.S.-centric and gets three quarters of its sales from General Motors (NYS: GM) . It offered guidance that was substantially ahead of analyst forecasts and predicted the U.S. auto market will expand by as much as 5% to 13.5 million vehicles sold this year.
China surpassed the U.S. auto market several years ago, but the U.S. industry is resurgent, rising 10% in 2011 to 12.8 million vehicles and marking its second consecutive year of double-digit growth.
All to the point that the rising tide is lifting all boats, and healthy U.S. carmakers are leading to healthy U.S. auto parts suppliers, once a sector that was ready to be tossed on the scrap heap. But CAPS member FAOFool still counts on the strength of U.S. car sales to bail out Lear going forward.
As the economy recovers, so will Lear. The economy is already starting its recovery, though slowly. Pent up demand for autos will drive future growth.
Add Lear to your Watchlist and let us know in the comments section below whether it will drive off to higher heights or if the buyback is just throwing good money after bad.
Stocks on sale?
Macy's has become a department-store powerhouse. Only a few years ago the retailer looked irrelevant as the ratings agencies downgraded its credit and it posted wider losses while being saddled with unproductive chains. Kohl's and JCPenney (NYS: JCP) , with their focus on the mid-tier consumer and an eye on fashion, were the hot department store chains to watch.
No longer, however, as Macy's has regained its investment-grade ratings by eliminating debt, bridging the gap in its underfunded pension plan, and advancing a more consumer-centric operating platform. Shares have soared more than 50% over the past year while JC Penney is up just 12% and Kohl's has fallen by 7%. Only discounter TJX Companies, which runs TJ Maxx and Marshall's, has performed nearly as well. Its shares are up 45% over the last 12 months.
But highly rated CAPS All-Star explainstuff isn't sure it can continue, as retail performance tends to be lumpy, coming at distinct times of the year.
Ewwww retailer. More and more coupon shopping, more and more shopping for discounts, sales. If you think about it this makes retailers much more cyclical than before. Shopping only happens in November, December and May. I think they better close shop all the rest of the year like a Halloween store or Party place. That will be more cost effective :p
Tell us on the Macy's CAPS page or in the comments section below if you think the turnaround story is complete, then go add it to your Watchlist to see how it plays out.
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At the time this article was published Fool contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio.Motley Fool newsletter service shave recommended buying shares of General Motors. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not 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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