Tuesday, March 13, 2012

Share Buybacks Are Back: But Why Now?

American Express and Discover Financial are among companies that have recently announced share buybacks.   I like the notion that the generally poor record of corporate acquisitions means that returning accumulated cash to shareholders through dividends or share buybacks is a better use of cash.

However,  companies rarely buy back their shares when the stock market is depressed and their stocks are cheap.  Instead, they usually announce large buybacks when the stock market is near a peak.  (For instance, buyback announcements were historically high in 2007.)  Now, with stocks generally at 52-week highs, is not the time to be buying back shares.  Managements, like investors, should be patient and sit on cash with stocks at these levels.

Steve Lehman

S & P 500:  1395

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