Buyback Buys: 4 Top Picks Among Stock Repurchase Companies

Buyback stocks outperform the market year after year, so why not just follow buyback announcements and invest yourself? Unfortunately, it's not that simple, cautions David Fried, a specialist in stocks undergoing buyback or stock repurchase programs, a contributor to MoneyShow.com and the editor of The Buyback Letter. First, not every company that announces a stock buyback actually follows through and executes the buyback as announced. Sometimes the actual number of shares purchased is far fewer than announced -- converting a major buyback into a minor, insignificant one you should simply ignore. Other times, a company cancels its stock buyback entirely -- often, with no public announcement. In such cases, the only way you'll know for certain that a buyback has taken place is by looking at a company's quarterly and annual reports. I divide companies that make buyback announcements into three categories: Category 1: Firms that never follow through with their buyback announcements. We never recommend these companies. Category 2: Companies that buy back stock only if and when their shares are bargain-priced. Companies like this give us the opportunity to make good profits over a two- or three-year period as long as we can buy shares close to the price at which the company itself purchases them. Category 3: Companies committed to long-term buyback programs as a way of building shareholder value. These companies can be counted on to fulfill their promise when they announce a stock buyback, and therefore have the most appeal for long-term investors. I carefully analyze each buyback stock, each buyback company, separating rhetoric from reality. Our team pores over announcements, scrutinize quarterly and annual reports, and talk to company officials, lawyers and competitors. Our recommendations each month center on a collection of five stocks that we believe, as a group, will outperform the market. The Buyback Premium Portfolio is up 264.10% since inception in August of 2000 - beating the S&P 500 by more than 156% over this period. Booking Holdings If you're a traveler or restaurant-goer, you might not be familiar with the name of the online travel giant Booking Holdings Inc., which provides online travel and related serves in Europe, North and South America, the Asia-Pacific region, the Middle East and Africa. But you've no doubt used one or more of the services it operates, which include: * Booking.com, which connects travelers with a selection of places to stay, including apartments, vacation homes, family-run B&Bs, 5-star luxury resorts, tree houses, and igloos. * KAYAK, which searches other sites to show travelers the information they need to find the right flights, hotels, rental cars, and vacation packages. * Priceline, an online travel deal service which provides travelers ways to save on hotel rooms, airline tickets, rental cars, vacation packages, and cruises. * Agoda, which provides online accommodation reservation services. * Rentalcars.com, which offers online rental car reservation services. * OpenTable, an online provider of restaurant reservation and information services to consumers and restaurant reservation management. The company was formerly known as The Priceline Group Inc. and changed its name to Booking Holdings Inc. in 2018. It was founded in 1997 and is headquartered in Norwalk, Connecticut. BKNG had better-than-expected second-quarter earnings -- $23.59 a share on revenue of $3.85 billion, up from $3.54 billion a year earlier. Analysts expected earnings of $22.69 a share on revenue of $3.75 billion. Guidance was also on the upswing -- for the third quarter (the peak travel season), BKNG expects earnings to range from $43.60-$44.60 a share. Analysts expect the company to report earnings of $43.97. Booking Holdings repurchased shares worth $2.6 billion during the second quarter. Shares outstanding have been reduced by 10.138% in the last 12 months. NRG Energy New Jersey-based energy company NRG Energy has more than 3 million residential, industrial and commercial customers under the NRG, Reliant, and other names. In 2017 the company began a three-year revamp, to reduce costs, slim down the business and reduce debt. It is expected to hit its reset goals, and when complete it will be basically 2 businesses -- one will be a competitive energy company selling power directly to end customers, with a heavy focus on Texas. The other will be an independent power producer that sells electricity to utilities. Company leaders hope the two sides will create a steady revenue and earnings stream. The company delivered second-quarter earnings of $0.70 per share from continuing operations. Revenues of $2.465 billion increased 0.2% from the year-ago quarter's figure. Through Aug 7, 2019, the company completed share repurchases of $1.25 billion that includes the $1 billion share repurchase program announced in the fourth quarter of 2018. The board authorized a share repurchase program of $250 million, expected to be executed in 2019. Shares outstanding have been reduced by 15.159% in the last 12 months. Textron Aerospace company Textron has a network of aircraft, defense, industrial and finance businesses, and many recognizable brands -- Bell, Cessna, Beechcraft, Hawker, Jacobsen, Kautex, Lycoming, E-Z-GO, Arctic Cat, Textron Systems, and TRU Simulation + Training. Founded in 1923, it has a network of powerful businesses with total revenues of $14.2 billion, 35,000 employees, facilities and a presence in 25 countries. Headquartered in Rhode Island, Textron is ranked 208th on the Fortune 500 list of largest U.S. companies. The second quarter had some disappointing results, and the company has been dealing with operational hiccups in key units. However, the company should get a leg up if Cessna's new Citation Longitude midsized business jet gets certified, as expected in the current quarter. This will give the company a refreshed product to sell into an expected business jet market recovery. And Cessna's 19-seat SkyCourier turboprop has already landed FedEx as a launch customer. Analysts like Textron as a financially sound company with a good track record of performance, trading at a discount. In the last 12 months, management has reduced shares outstanding by 7.362%. Waters Corp. The world's leading specialty measurement company, Waters Corp. sells and services analytical instruments like chromatography, mass spectrometry and thermal analysis for the life science, materials and food sciences industries for more than 60 years. It has some 7,200 employees worldwide, and operates directly in 35 countries, including 15 manufacturing facilities. Its products are available in more than 100 countries. It is based in Massachusetts, and is a member of the S&P 500. Waters Corp. had second-quarter non-GAAP earnings of $2.14 per share, beating the estimate by 3 cents. The figure improved 10% on a year-over-year basis and 33.7% sequentially. Net sales were $599.2 million, up 0.5% from the year-ago quarter and 16.6% from the previous quarter. Improved performance in the pharmaceutical market contributed to the results. Q3 sales growth of 2%-4% is expected. The company has a good long-term record. Over the last 10 years, the stock has climbed nearly 400%. Over the last five years, revenue has grown 7+%. The return on equity of 41+% and return on assets of 16+% are outperforming more than 3/4 of the companies in the Medical Diagnostics and Research industry. In the last 12 months, management has reduced shares outstanding by 11.319%.

Buyback Buys: 4 Top Picks Among Stock Repurchase Companies

The Buyback Premium Portfolio is up 264% since inception in August 2000, beating the S&P 500 by a whopping 156%.

Columnist Conversation

Stocks Under $10

Two Good Signs -- Especially for Small-Cap Investors

More Insider Buying in American Woodmark (AMWD)

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.