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Strategies & Market Trends : Calls and Puts for Income

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To: Keith J who wrote (5494)	9/29/2012 6:11:42 AM
From: dealmakr	1 Recommendation Read Replies (1) of 5891

Hi Keith, "I don't know why some companies spend so much money on buybacks like that." Wall Street is littered with many poorly timed stock buybacks. Companies have a tendency to want to repurchase their stock when things are looking good usually at a higher price than average. When things are looking tough they want to hoard cash. Kind of backwards from the old tennant of buying when nobody wants your stock and selling when everybody does. Stock compensation costs meaning dilution is a way that is offset by stock buybacks. When these costs are high the company has to buy back enough to offset the dilution meaning options, restricted stock etc that have been given to insiders. When the insiders are exercising their options and selling their stock it is something that should be paid attention to. Take a look at CSCO,DELL or INTC probably the poster children for buybacks over the last decade or so. If you look at the total share count from about 10 years ago and the cash spent on buybacks and then figure in the dilution of options and restricted stock you can see how these things played out compared to the data of today and if they got a bargain or not. Companies like AZO are continuing stories with aggressive buybacks and I follow them to see how things play out. With many more companies instituting a dividend policy along with their buybacks, it does give the shareholder a choice in how he views his investment and also puts a few bucks in their pocket from holding the position. With QCOR announcing a dividend and an increase in their buyback, the only question that is relavent is has the fundamental story changed. If you look at cash on hand of 114mm end of Q2 and a dividend of about 10mm/ quarter along with an increase to 7mm buyback at around 18/share or 126mm, where is the dough going to come from. I know that the stock won't be bot back all at once, but if things don't work out, it may be tough to use the cash for these purposes. Buybacks are something that can be very good for companies and their shareholders if done from a strong financial base, otherwise you can see how many have shot their bolt and blown their cash at a bad time. Good Trading dealmakr

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