There is an old saying that stock buybacks are a good sign because they are
proof a companys best investment is in its own shares. Put another way,
management thinks the market is undervaluing its stock – so it is more than
happy to buy at bargain prices while they last. The trouble is, most – if not
all – CEOs and directors have little incentive to say the company is anything
other than oversold. Find a corporate executive admitting he made a mistake and
the best-case scenario is that he's at a podium announcing his retirement.
More than likely, he's sipping a daiquiri in St. Croix. Yes, some stock
buybacks are smart decisions made by good companies with good leadership. But
some are just moves to boost EPS figures for the quarter – since, after all,
if you can't grow the E in "earnings per share," you can always subtract
the S via buybacks that take shares off the market. Other buybacks are merely
meat for the PR grinder, where a company announces a plan to buy back billions
of dollars of stock and then puts very little actual money toward the repurchase
after the SEC filing. Here are five big-name companies whose buybacks may never
deliver any value to shareholders: AOL (NYSE: AOL ), TiVo (NASDAQ: TIVO ),
Southwest Airlines (NYSE: LUV ), Covidien (NYSE: COV ), and Hewlett-Packard
(NYSE: HPQ ). AOL AOL
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