Are companies doing massive buybacks the best stocks to buy?
The reason I ask is that the Wall Street Journal ran a story in mid-May that discussed the ongoing popularity of stock buybacks. It noted that companies continue to buy back a ton of their stock despite the fact volatile markets have made the exercise that much more difficult.
According to S&P Dow Jones Indices, as of May 16, the 86% of S&P 500 companies that had already reported first-quarter results repurchased $188 billion (Editor’s Note: paywall) in stock, the second-highest quarterly amount since it started to keep track of the figures in 1998.
Whether you’re for or against stock buybacks, it’s hard to argue with their popularity.
Companies are repurchasing their shares because they provide a significant tailwind to share prices. Data suggests that 25% of the S&P 500 experienced a 4% increase in earnings per share in the first quarter due to buybacks.
I’ve always said that investors can’t just look at the earnings per share growth, they also need to look at the increase in net income, but investors don’t want to hear it. EPS is what drives share prices higher. Everything else is immaterial.
Care to guess when S&P 500 companies repurchased the highest quarterly amount of stock?
It was the fourth quarter of 2018, a time when stock prices were cratering. The Wall Street Journal smartly suggested that the fact companies were buying toward the end of 2018 is proof they weren’t worried about the prospect of slower global growth.
I’d have to agree because companies generally aren’t good at timing stock buybacks.
The WSJ article listed the top ten stock buybacks by S&P 500 companies in 2018. I thought it would be fun to rate each of them in terms of the average price paid and the return on investment so far in 2019. This should show if these buybacks created stocks to buy or not.
To make things simpler, I’ll be using the 10-K’s for share repurchase data. Each stock will get a rating from 1 to 10 (1 being the best and 10 the worst). The stock with the lowest combined score will be rated the best stock to buy, and so on.
Facebook (FB)
During fiscal 2018, Facebook (NASDAQ:FB) repurchased $12.9 billion of its stock at an average price of $163.67.
Facebook’s share repurchase program commenced in 2017. It has no expiration date. In December 2018, the board of directors added $9.0 billion to its program. During the three months ended March 31, 2019, it repurchased 3.1 million of its shares for a total outlay of $521.0 million.
Facebook stock’s high and low in fiscal 2018 (Jan. 1, 2018 to Dec. 31, 2018) was $218.62 and $123.02. The average price paid of $163.67 is 4.2% below the midpoint of $170.82.
Based on a May 24 share price of $181.06, Facebook’s return on investment on its 2018 share repurchases is 10.3%.
Facebook ranks 2nd for the average price paid below or above its midpoint and 3rd for return on investment.
On this list of stocks to buy, FB’s overall rank is 1st.
Apple (AAPL)
During fiscal 2018, Apple (NASDAQ:AAPL) repurchased $73.1 billion of its stock at an average price of $180.27.
In May 2018, the company initiated a new $100 billion share repurchase program. $29 billion of this new program was repurchased in the last five months of the fiscal year.
Apple stock’s high and low in fiscal 2018 (September 29, 2017, to September 30, 2018) was $229.67 and $152.46. The average price paid of $180.27 is 5.7% below the midpoint of $191.07.
Based on a May 24 share price of $178.97, Apple’s return on investment on its 2018 share repurchases is -0.72%.
Apple ranks 1st for the average price paid below or above its midpoint and 6th for return on investment.
On this list of stocks to buy, AAPL’s overall rank is 2nd.
Oracle (ORCL)
During fiscal 2018, Oracle (NASDAQ:ORCL) repurchased $11.5 billion of its stock at an average price of $48.32.
In February, Oracle added $12 billion to the $11.5 billion remaining on its $24 billion share repurchase program initiated in September 2018.
ORCL stock’s high and low in fiscal 2018 (June 1, 2017, to May 31, 2018) was $53.48 and $43.74. The average price paid of $48.32 is 0.6% below the midpoint of $48.61.
Based on a May 24 share price of $52.77, Oracle’s return on investment for its 2018 share repurchases is 9.1%.
Oracle ranks 3rd for the average price paid below or above its midpoint and 4th for return on investment.
On this list of stocks to buy, ORCL’s overall rank is 3rd.
Microsoft (MSFT)
During fiscal 2018, Microsoft (NASDAQ:MSFT) repurchased $8.6 billion of its stock at an average price of $86.87.
As of March 31, 2019, Microsoft had $15.6 billion of its $40.0 billion share repurchase program still available. Through the first three quarters of fiscal 2019, Microsoft repurchased $12.6 billion of its stock. The share repurchase program has no expiration.
MSFT stock’s high and low in fiscal 2018 (July 1, 2017, to June 30, 2018) was $102.69 and $68.02. The average price paid of $86.87 is 1.8% above the midpoint of $85.36.
Based on a May 24 share price of $126.24, Microsoft’s return on investment on its 2018 share repurchases is 45.3%.
Microsoft ranks 6th for the average price paid below or above its midpoint and 1st for return on investment.
On this list of stocks to buy, MSFT’s overall rank is 4th.
JPMorgan (JPM)
During fiscal 2018, JPMorgan (NYSE:JPM) repurchased $20.0 billion of its stock at an average price of $110.09.
In June 2018, JPMorgan’s board authorized the repurchase of up to $20.7 billion of its common shares between July 1, 2018, and June 30, 2019.
JPMorgan stock’s high and low in fiscal 2018 (December 31, 2017, to December 31, 2018) was $119.33 and $91.11. The average price paid of $110.09 is 4.6% above the midpoint of $105.22.
Based on a May 24 share price of $109.71, JPMorgan’s return on investment on its 2018 share repurchases is -0.35%.
JPMorgan ranks 7th for the average price paid below or above its midpoint and 5th for return on investment.
On this list of stocks to buy, JPM’s overall rank is 5th.
Cisco (CSCO)
During fiscal 2018, Cisco (NASDAQ:CSCO) repurchased $17.7 billion of its stock at an average price of $40.88.
In February, Cisco authorized a $15 billion increase to its share repurchase program. A total of $18 billion remains under the program with no termination date.
CSCO stock’s high and low in fiscal 2018 (July 29, 2017, to July 28, 2018) was $46.37 and $30.36. The average price paid of $40.88 is 6.5% above the midpoint of $38.37.
Based on a May 24 share price of $54.37, Cisco’s return on investment on its 2018 share repurchases is 33.0%.
Cisco ranks 10th for the average price paid below or above its midpoint and 2nd for return on investment.
On this list of stocks to buy, CSCO’s overall rank is 6th.
Wells Fargo (WFC)
During fiscal 2018, Wells Fargo (NYSE:WFC) repurchased $20.6 billion of its stock at an average price of $54.95.
In January 2018, Wells Fargo’s board authorized the repurchase of 350 million of its common shares. In October 2018, it added 350 million more shares. As of March 31, 2019, 298 million shares were outstanding.
Well’s Fargo stock’s high and low in fiscal 2018 (December 31, 2017, to December 31, 2018) was $66.31 and $43.02. The average price paid of $54.95 is 0.5% above the midpoint of $54.67.
Based on a May 24 share price of $46.17, Wells Fargo’s return on investment on its 2018 share repurchases is -16.0%.
Wells Fargo ranks 4th for the average price paid below or above its midpoint and 10th for return on investment.
On this list of stocks to buy, WFC’s overall rank is 7th.
Amgen (AMGN)
During fiscal 2018, Amgen (NASDAQ:AMGN) repurchased $17.9 billion of its stock at an average price of $189.42.
As of March 31, 2019, Amgen had $2.1 billion of its share repurchase program still available. That was after it added $3.6 billion to the repurchase program in December 2018.
Amgen’s stock’s high and low in fiscal 2018 (December 31, 2017, to December 31, 2018) was $210.19 and $163.31. The average price paid of $189.42 is 1.4% above the midpoint of $186.75.
Based on a May 24 share price of $171.28, Amgen’s return on investment on its 2018 share repurchases is -9.6%.
Amgen ranks 5th for the average price paid below or above its midpoint and 9th for return on investment.
On this list of stocks to buy, AMGN’s overall rank is 8th.
Citigroup (C)
During fiscal 2018, Citigroup (NYSE:C) repurchased $14.5 billion of its stock at an average price of $68.40.
Its board approved Citigroup’s $17.6 billion share repurchase program on June 28, 2018. It expires on June 30, 2019. During the three months ended March 31, 2019, it repurchased 65.6 million of its shares for a total outlay of $4.1 billion. It currently has $3.6 billion left on its share repurchase program.
C stock’s high and low in fiscal 2018 (Jan. 1, 2018 to Dec. 31, 2018) was $80.70 and $48.42. The average price paid of $68.40 is 5.9% above the midpoint of $64.56.
Based on a May 24 share price of $64.39, Citigroup’s return on investment on its 2018 share repurchases is -5.9%.
Citibank ranks 8th for the average price paid below or above its midpoint and 8th for return on investment.
On this list of stocks to buy, C’s overall rank is 9th.
Bank of America (BAC)
During fiscal 2018, Bank of America (NYSE:BAC) repurchased $20.1 billion of its stock at an average price of $29.72.
On February 7, 2019, following approval from the Federal Reserve, Bank of America’s board authorized an additional $2.5 billion in share repurchases through the end of June. Bank of America repurchased 220.0 million of its shares in the first quarter of fiscal 2019.
BAC stock’s high and low in fiscal 2018 (December 31, 2017, to December 31, 2018) was $33.05 and $22.66. The average price paid of $29.72 is 6.7% above the midpoint of $27.86.
Based on a May 24 share price of $28.18, Bank of America’s return on investment on its 2018 share repurchases is -5.2%.
Bank of America ranks 9th for the average price paid below or above its midpoint and 7th for return on investment.
On this list of stocks to buy, BAC’s overall rank is 10th.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
