3 Large-Cap Stocks Profiting from Buybacks

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February was a record month for stock buybacks in America, with corporations announcing $104.3 billion in planned repurchases, the highest level of activity in the 20 years since the statistic was tracked.

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The stock buybacks last month were nearly double the $55 billion repurchased in February 2014, a sign that companies have no intention of slowing their penchant for stock buybacks any time soon.

Given the voracious appetites of large-cap companies in February to buy back their own stock, it’s only appropriate that we take a look at three of the biggest from the first week of March to determine if any of these stocks are actually worth buying.

Here’s what we found.

3 Large-Cap Stocks Profiting from Buybacks: Stryker Corporation (SYK)

3 Large-Cap Stocks Profiting from Buybacks: Stryker Corporation (SYK)Buyback: $2 billion
Market Cap: $34.3 billion
YTD Performance: -4%

Stryker Corporation (NYSE:SYK), the Michigan manufacturer of medical devices, announced March 3 that its board has authorized a $2 billion in stock buybacks to go along with the $600 million it’s yet to spend from the previous authorization.

SYK stock has underperformed the S&P 500 over the last three months, so the 1.6% bump it got on the announcement was music to the ears of Stryker shareholders.

Between 2012-2014, Stryker has repurchased $525 million of its stock, which isn’t a whole lot considering it has a market cap of $34 billion. With a SYK stock price currently trading around $90, an average price over the past three years of $71 and a price paid per share of $64 for all its buybacks, the fact that SYK is endeavoring to buy back five times as much stock as it has in the past three years speaks volumes of the company’s confidence in its business.

Unfortunately, two things get in the way of shareholder celebrations: Boards rarely complete buyback purchase authorization programs, and buying this much stock will ensure that they overpay for whatever stock it can get its hands on.

Styker’s buyback plan sounds good on paper. In reality, it’s far from it.

3 Large-Cap Stocks Profiting from Buybacks: Best Buy Co Inc (BBY)

3 Large-Cap Stocks Profiting from Buybacks: Best Buy Co Inc (BBY)Buyback: $1 billion
Market Cap:
$14.2 billion
YTD Performance: 
3.6%

The electronics retailer Best Buy Co Inc (NYSE:BBY) continues to battle in its quest to remain relevant in American retail. Its multi-year turnaround under Hubert Joly has hit several speed bumps along the way, but its announcement March 3 that its board has authorized a $1 billion buyback of BBY stock and $180 million special dividend should be especially good news to Richard Schulze, BBY’s founder and largest shareholder, who will get $30 million in the payout.

I’m not a fan of buybacks, but if there ever were a company where this type of investment is preferred over actual expansion, Best Buy would be it. Embarking on a $400 million cost-cutting program in 2015 and holding a slew of real estate it probably doesn’t need, spending its free cash flow in such a manner is good insurance that it won’t do anything stupid.

After all, if you don’t have the cash to expand, you probably won’t.

Best Buy is making money. Although BBY stock is trading near its 52-week high and less than 20% off its five-year high, if it continues to deliver positive same-store sales, these nosebleed prices will seem absolutely cheap by comparison in five years time.

In Best Buy’s case, its buyback is addition by subtraction. I like it a lot.

3 Large-Cap Stocks Profiting from Buybacks: Target Corporation (TGT)

3 Large-Cap Stocks Profiting from Buybacks: Target Corporation (TGT)Buyback: $2 billion
Market Cap:
$49.8 billion
YTD Performance:
2.5%

Just saying its name gets my blood boiling because ever since I started providing stock commentary for InvestorPlace.com in August 2011, Target Corporation (NYSE:TGT) has received more support from me than any almost any other company I can think of. I wrote countless articles in 2014 about how they were going to get their act together in Canada, but it wasn’t to be. I was miserably wrong about its management capabilities.

I won’t make that mistake twice. I will, however, note that CEO Brian Cornell has been very decisive in his moves both in Canada and in the U.S.

So, the news last week last week that Target was eliminating several thousand jobs including many at its headquarters in Minneapolis to save $2 billion in costs as part of its belt tightening was interesting to say the least. Especially when you consider it will invest $1 billion of those savings in technology, the very thing that almost brought it to its knees with a massive data breach.

The statement that it will be able to buy back as much as $2 billion in TGT stock in fiscal 2015 and $3 billion every year thereafter was a sign that its troubles could be behind it sooner than investors think. Near 52-week and five-year highs, you hate to see a company throwing good money after bad — but if ever there was a need for a little flag waving, this would be it.

Begrudgingly, I think this is a good share repurchase plan — although its definitely not in the same league as Best Buy.

As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.

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Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


Article printed from InvestorPlace Media, https://investorplace.com/2015/03/syk-bby-tgt-3-large-cap-stocks-profiting-from-buybacks/.

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