US companies are buying back shares# Stock
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Executives of publicly traded companies are notoriously bad capital
allocators. They overpay for companies. They make purchases using stock when
it's undervalued. They pay cash when the stock is dear. And they repurchase
shares at the worst times.
It's no surprise that today, U.S. companies are buying back shares at the
highest rate in four years. A Bloomberg report attributed the purchases to
companies "taking advantage of record-high cash levels and low interest
rates to purchase equities at valuations 15% cheaper than when the credit
crisis began." Companies have authorized more than $453 billion in
repurchases this year, putting 2011 on track to be the third-highest annual
total behind 2006 and 2007. Do you remember what happened after 2007?
"If the corporate community really agreed on the idea [that] we're heading
to a recession, they wouldn't be buying back their stock," James Paulsen,
chief investment strategist at Wells Capital Management, which oversees
about $333 billion, told Bloomberg. "That says something about their
expectations. That's a testament from CEOs, corporate managements saying
they are way undervalued and they have a positive outlook on the future."
allocators. They overpay for companies. They make purchases using stock when
it's undervalued. They pay cash when the stock is dear. And they repurchase
shares at the worst times.
It's no surprise that today, U.S. companies are buying back shares at the
highest rate in four years. A Bloomberg report attributed the purchases to
companies "taking advantage of record-high cash levels and low interest
rates to purchase equities at valuations 15% cheaper than when the credit
crisis began." Companies have authorized more than $453 billion in
repurchases this year, putting 2011 on track to be the third-highest annual
total behind 2006 and 2007. Do you remember what happened after 2007?
"If the corporate community really agreed on the idea [that] we're heading
to a recession, they wouldn't be buying back their stock," James Paulsen,
chief investment strategist at Wells Capital Management, which oversees
about $333 billion, told Bloomberg. "That says something about their
expectations. That's a testament from CEOs, corporate managements saying
they are way undervalued and they have a positive outlook on the future."