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How to Play the Stock Buyback Frenzy

February 20, 2013

Stock of the Day

The stock buyback frenzy continues.

As I mentioned yesterday, corporate America is raising approximately $2 trillion in the bond market, and some companies are using this money to buy out the competition. Others are finding another use for all that cash: They're giving some back to shareholders in the form of share repurchase. This is fantastic news for shareholders, and here's why:

  1. It's a sign that a company considers its shares good bargain.
  2. Having fewer shares on the market reduces share price fluctuations.
  3. Stock buybacks increase earnings per share—helping a company beat analyst estimates when they announce quarterly results.
  4. For dividend-paying companies, buying back stock means that there are fewer shares that require a quarterly dividend payment.

That being said, right now I'm telling all of my readers to be on the lookout for companies that are aggressively buying their stock back. I expect the market to become choppy before too long, so gravitating towards these companies is an important part of any conservative investing strategy.

To help you get started, I've compiled a list of 10 of the biggest stock buyback launches that you should keep on your radar. (Of course, while a stock buyback program is a good sign for a company, it's not a green light for a buy recommendation, so I've added a column with my Portfolio Grader recommendation for each stock.)

Ticker Company Stock Buyback  Quantitative Grade Fundamental Grade My Take
CMCSA Comcast Corp. $6.5 billion A B Strong Buy
CBS CBS Corp.  $1 billion A B Buy
CELG Celgene Corp. $600 million B C Buy
GNC GNC Holdings Inc. $250 million B B Buy
AET Aetna Inc. $750 million C C Hold
MAR Marriott International Inc. $25 million C B Hold
MCO Moody's Corp. $1  billion C B Hold
UPS United Parcel Service $10 billion C D Hold
GRMN Garmin Ltd. $300 million F B Sell
DOW Dow Chemical Company $1.5 billion F D Strong Sell

So it's clear that Comcast Corp. (CMSA) is currently one of the most promising stock buyback plays out there. After all, this quarter analysts expect the cable and broadband company to grow earnings by 16%—while the rest of the CATV Systems industry's profits are forecast to sag nearly 9%. I currently have this stock in my Blue Chip Growth newsletter and since adding it in November it has brought us a tidy 17% gain. Meanwhile, I don't want you to be taken in by Garmin Ltd.'s (GRMN) or Dow Chemical Co.'s (DOW) recent announcements—buying pressure has hit rock bottom for both of these stocks so they're just not worth buying right now.

That's all I have for you today—I'll be in touch tomorrow with a briefing of the latest market moving earnings announcements.

Sincerely,

Louis Navellier

Louis Navellier

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