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Bob Carey
Chief Market Strategist
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  Companies Repurchasing Stock at a Better than Average Clip
Posted Under: Broader Stock Market
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View from the Observation Deck
  1. Strong corporate earnings (8 consecutive quarters of double-digit growth for S&P 500) plus record cash holdings gives companies the means to do it.
  2. The S&P 500 Index closed the 11/14/11 trading session at 1251.78, 20.0% below its all-time high of 1565.15 on 10/9/07.
  3. So companies may view their stocks as attractively valued.
  4. The European debt crisis is creating enough economic uncertainty, in our opinion, that management may view repurchasing stock as a productive use of capital.
  5. Buybacks may be preferred over increasing a stock dividend, making an acquisition, or boosting capital expenditures when volatility and uncertainty are high.
  6. While not always the case with stock buybacks, the best case scenario is for management to reduce outstanding share count in an effort to boost EPS.
  7. Management can encounter growing pressure from shareholders, particularly activist shareholders, whenever it allows its cash holdings to mount.
  8. Stock buybacks are one way management can attempt to share corporate earnings with investors. We will continue to monitor the practice.
Posted on Tuesday, November 15, 2011 @ 3:42 PM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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