Trend: Several large corporations have completed stock buybacks recently.
Do stock buybacks indicate confidence in the future of the company by senior management? David Fry suggests an alternative explanation.
Link: David Fry's Market Outlook for Friday - Seeking Alpha
Stock buybacks serve no purpose other than to bolster a stock's price. A more nefarious explanation is that a stock buyback is the easiest way for a management heavily vested in cheap options to reward themselves without appearing to do so. With fewer shares outstanding, even flat revenue growth can increase earnings per share and theoretically share prices.
Here's a list of buybacks done lately and the impact on market capitalization:
- The Home Depot Inc. (HD): $22.5B: 28.3%
- Caterpillar Inc. (CAT): $7.5B: 14.7%
- 3M Company (MMM): $7B: 11%
- International Business Machines Corp. (IBM): $15B: 9.3%
- ConocoPhillips (COP): $13B: 9.5%
Stock buybacks aren't long-term beneficial in my opinion, since I'd rather see money spent on research and perhaps even increased dividends.
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