Important Updates for Investors
Carla Pasternak's Premiere Issue of High-Yield International Just
Released
Income expert Carla Pasternak's debut issue of High-Yield
International covers a Taiwanese manufacturer yielding 9.5%... a
rare Mexican monopoly yielding 13.4%... and other top-performing
investments yielding up to 19.0%.
Government's Biofuel Timetable Could Spell +15,900% Growth
+15,900% growth might seem far-fetched... but it's not. In fact, it
is mandated by law. And I've identified the ONLY stock positioned to
capture this growth.
The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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Finding Companies
with Share Buyback Plans |
Published:
June 16, 2008
Corporate managers are charged with a straightforward task: to
enhance shareholder value. Oftentimes, creating value means
introducing a new product or taking steps to cut costs and
overhead -- complex steps that can take years to implement.
But there's another more direct way to boost value, a method
that's been endorsed by none other than legendary billionaire
investor Warren Buffett. In his 1984 annual letter to Berkshire
Hathaway shareholders, Buffett wrote that companies with
outstanding businesses, solid financials and an undervalued
stock could perform "no alternative action that could benefit
shareholders as much as share repurchases." In other words,
Buffett believes that companies with undervalued stock prices
can return significant value to shareholders by simply buying
back their own stock.
So why are buybacks so value-enhancing? Buybacks are a direct
way of returning cash to shareholders, directly boosting each
shareholders stake in a firm.
A share of stock represents ownership in a company and a share
in the profits that business generates over time. Each share
represents an equal stake in profits.
Consider what happens when a company repurchases stock. This
action has no effect on the total profits the business generates
nor does it enhance competitiveness. However, there is a
profound effect on the company's earnings per share (EPS) --
total earnings divided by total shares outstanding. As a firm
repurchases its shares, its existing shareholders own a larger
and larger slice of the firm's earnings pie, thereby boosting
EPS.
For example, consider a firm with $100 million in total earnings
and 50 million shares of stock outstanding. That firm's EPS
would be $2 per share.
Further, assume that company's earnings remain flat at $100
million per year but the firm buys back 10 million shares of
stock. In this case, earnings per share would rise to $2.50 --
the same $100 million in profits is now represented by only 40
million shares of stock. Thus, while total profits remain
stagnant, the key EPS figure rises. That means that each
existing shareholder now owns a larger slice of the firm's total
profits.
Most analysts use the price-to-earnings (P/E) ratio of a firm as
a key valuation metric. The higher the P/E ratio, the more
richly valued and expensive the firm. Since P/E is calculated by
dividing the price of a stock by the EPS, buying back stock also
has the effect of lowering the firm's P/E. Lowering this key
valuation ratio makes the stock more attractive to investors.
Of course, share repurchase programs do far more than just
directly boost shareholders' stake in a firm, they raise the
value of the remaining shares...
Important Note: In the remainder of this article,
Market
Advisor editor Paul Tracy lists seven companies with
aggressive buyback programs, some of which have purchased as
much as 33% of their own outstanding shares in the past five
years. Even better, Paul profiles two companies buying back
shares at incredible rates -- and both have compelling stories. However,
in order to view the remainder of this article, you'll need to
subscribe to our premium investing newsletter --
Market
Advisor. After you subscribe, you'll
receive immediate access to this full article, as well as our
monthly
Market
Advisor newsletter and a host of
additional premium content. Please visit one of the following
links to continue.
-- Paul Tracy
Editor
StreetAuthority
Market Advisor
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receive in-depth guidance on today's leading investing
opportunities each month, plus access to five model
portfolios, please subscribe to Paul Tracy's premium investment
newsletter -- the StreetAuthority
Market Advisor. |
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Investing Doesn't Get Any Easier Than This |
Stock picker Amy
Calistri's strategy is as simple as investing gets -- just one idea
a month designed to make money in today's market. Invest this way
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what the Fed is up to -- because every "bad" economic development
actually helps some investment or another.Your investing life can
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Go here to learn about Amy's simple investing strategy.
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