[First bulls counting on retail investors, now they are counting on company stock buy back<g>]--Some Bulls See Hope in Buybacks
nytimes.com
By CONRAD de AENLLE
Published: October 27, 2007
NO matter what else they buy and sell, companies trade their own stocks from time to time, hoping to buy low and sell high, as the old adage advises.
Net equity issuance — the amount of stock sold by companies minus the amount bought — is tracked by Wall Street strategists because of its strong correlation with stock market moves. High issuance often heralds falling share prices; low figures tend to precede periods of market strength.
Recent data should provide cheery reading for bulls. Equity is being withdrawn from the market at a record annual pace of roughly $800 billion, according to the Federal Reserve, mainly as a result of a record amount of share buybacks and extensive spending by private equity firms taking public companies private.
Some investment advisers are taking the latest data at face value; they view it as one more reason, in addition to factors like fair valuations and a friendly Fed, to think the stock market rally has further to run. Others find cause to interpret the low net issuance more cautiously and warn that it may not be as bullish as it seems.
David Kovacs, senior portfolio manager at Turner Investment Partners, finds the figures heartening. The heavy use of buybacks shows him that executives are optimistic about their stocks. “Insiders know what they’re doing,” he said. “If they’re net buyers, it means they’re bullish.”
Pete Kendall, co-editor of The Elliott Wave Financial Forecast newsletter, says Mr. Kovacs may be giving executives too much credit. “I tend to think of it as another sentiment indicator,” he said of buybacks. “Just as investors get more bullish as the market rises, company officers get caught up in their own share price.”
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A UBS study of companies in the Standard & Poor’s 500-stock index, excluding banks, shows just how brimming their coffers are. Cash has remained above 8.5 percent of corporate assets since 2002 after having never reached that level at least since 1978. |
