You can’t help but wonder if the $750 billion in share buybacks in 2013 is an ominous sign of a crisis to come like it was in 2007, just prior to the financial collapse.
It’s one thing for a few cash-rich companies to reward investors by boosting share values when stocks are underperforming. But it is a whole different story when buybacks en masse skew numbers and artificially inflate entire indices.
The 30 companies that comprise the DJIA authorized $211 billion in buybacks, boosting the index to levels similar to the tech boom in the late 1990s. And companies in the S&P 500 index posted revenue growth of 3.5% in third quarter of 2013. Yet earnings per share for these S&P companies rose by 5.7% during the quarter, according to a Reuters report. It’s hard to know what is real and what is facade.
For the most part, buybacks are designed to reward shareholders. But beware. They can also be cover ups for underlying corporate snafus or problems in the product pipeline.
Here are three companies that might be buying back shares for the wrong reasons, and should be viewed as stocks to avoid