Degree of selling is just weak. I would keep an eye on GE here. Drops below 15.50 would be very bearish for the bellweather.
US STOCKS OUTLOOK: Buyback Activity Speaks Louder Than Words
--------------------------------------------------------------------------------
Tue Oct 20 15:00:08 2009 EDT
By Donna Kardos Yesalavich
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Share-repurchase activity often appears near the bottom
of quarterly earnings reports, and holds a similar rank on investors' long list
of concerns. Nonetheless, stock buybacks say a lot about how a company
perceives its financial condition and future.
Stock buybacks fell to their lowest point since at least 1998 in the second
quarter, and are likely to come in at a similar level for the third quarter,
according to Howard Silverblatt, senior index analyst at Standard & Poor's. The
slump comes as most companies are still trying to get or conserve as much cash
as they can.
That means the companies that are buying back their shares should stand out
even more these days than in the past, although investors don't seem to be
paying their repurchase activity much attention. Other matters, such as whether
a company's earnings and revenue beat analysts' expectations, are hogging the
spotlight, along with the language executives have been using when providing
guidance.
However, actions speak louder than words, and participants would be wise to
keep an eye out for which companies are buying back shares. The few that are
doing so are effectively indicating that not only is their balance sheet solid,
they also consider their stock cheap and don't foresee major troubles ahead
that would give them reason to keep the capital they're giving up.
Another reason to pay attention to companies making share repurchases: Stocks
of companies that have reduced their shares outstanding over time have
outperformed those that issue shares or keep their share count constant,
according to a BofA Merrill Lynch Global Research report.
John Schonberg, manager of the RiverSource Mid Cap Growth Fund, keeps that in
mind as he tries to avoid companies that issued lots of shares to raise capital
over the past year.
"As we go forward, there's going to be a huge difference between the
companies that did issue equity and those that didn't," Schonberg said. "Your
earnings power is going to be so much stronger if you didn't have to dilute
shareholders," he added, noting that a reduction in shares outstanding
translates to higher earnings per share.
"In addition to just the pure mathematics of a company buying back its own
stock, it's also a psychological positive," said Jill Holup, director of
investments at Lowenburg Wealth Management. "It signals it's a good value, and
from a pure trading perspective, if the company is in as a buyer."
Walgreen Co. (WAG) made that signal last week, as it announced having
authorized a new $2 billion share-repurchase program, expiring 2013, to replace
its previous $1 billion plan that had about $655 million remaining.
Still, buybacks are unlikely to start back up quickly. "It's a bold move,
especially at this current point, and we think they're much lower on the
priority list," S&P's Silverblatt said. "But a recovery of [buybacks] would
definitely be a positive sign." |
