Posted on 11/21/2015 2:31:06 PM PST by Lorianne
Stocks have been on a tear to nowhere this year. Now investors are praying for a Santa rally to pull them out of the mire. They’re counting on desperate amounts of share buybacks that companies fund by loading up on debt. But the magic trick that had performed miracles over the past few years is backfiring.
And there’s a reason.
IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R&D. It’s staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. And its stock is down 38% since March 2013.
Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R&D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R&D and capital expenditures. They’re all doing it.
(Excerpt) Read more at wolfstreet.com ...
Reduce the share count by 50% using buybacks and you turn a $1.00/share loss into a $2.00/share loss. Works both ways.
But...but...Carly Fiorina was brilliant, BRILLIANT when she did this for HP shareholders!
*SMIRK*
Hey, we’re still a YEAR out - she might redeem herself in my eyes between now and then. Maybe. I dunno.
I believe in Santa Rally
He’ll come, I know he will!
Virtually every single time a company announces a share buy-back, I can count on their stock declining.
This lumps a lot of different companies into one pot. IBM is indeed a financial engineering company, but both 3M and Pfizer have a lot going for them in terms of real products and profits. Both good companies and bad companies use these techniques.
You have to look at the business fundamentals. What products do Pfizer and 3M sell, and why do customers buy them? Could they get something better elsewhere?
Cisco issues massive shares as compensation to management and employees. This adds to the float, and at the same time they say they are retiring shares.
The market cap for Cisco is 140 billion dollars. The buyback program has spent over 90 billion to date and only brought down the float by 30%.
Analysis has shown 2 shares issued for every 1 bought back and retired.
I would rather the employees only get a discount on shares bought thru the employee share purchase plan, then getting the share for free and selling them the same day.
Nobody at Cisco has skin in the stock. Ownership inside Cisco is about the lowest of any company, so nobody cares if the stock price appreciates.
I think this is an industry wide sham of saying your going to return value to shareholders yet most of the money goes into insiders pockets.
If not for this sham Cisco stock would be worth that double they are paying per retired share.
If you don’t like this, don’t buy the stock. If the market agrees, the stock will tank. The stock price is mostly due to dumb stock analysts who don’t understand financials, anyway. Do your own research and you’ll be miles ahead.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.