It is a fact, companies often do an amazingly terrible time buying back their own stock. I mean really, shouldn't THEY KNOW when their stock is cheap and when it's expensive?
Did you know Cisco (CSCO)bought back $3.5 BILLION in stock in the January 2008 quarter? Seriously...the stock was at $24...which seems low since it was at $33.13 on 09/28/2007. But when the stock fell to $14.57 on 02/27/2009...how much stock did they buy back in that quarter? $384 Million. Is it just us or is that bad math? It seems like after buying $3.8 Billion $10 higher; they'd want to average down on their cost basis.
Well, it seems as if Cisco (and the rest of the market) are up to their old tricks of buying back large amounts of stock. In the July, 2010 quarter, Cisco managed to buy back $1.93 Billion of stock (at least they finally managed to grab it for under $24). The stock fell off a cliff when they reported earnings, under $20. Hopefully the person or firm in charge of their buybacks had his/her finger on the trigger to Buy! Buy! Buy! When it fell below $20.
JPMorgan Chase went nuts, purchasing back $18.93 BILLION in stock in the June 2009 quarter after barely registering any purchases in December of 2004 and September of 2006. If there is one firm that has done a terrific job buying back stock...it's certainly Jamie Dimon (their CEO) and his band of merry executives. The stock fell below $40...and without being able to pay a dividend, the used the capital they took in to buy back stock to return capital to shareholders.
IBM came in with $3.16 Billion a couple quarters in a row this year. Even Microsoft got into the act with $2.93 Billion in stock repurchases.
Why do you care about all these companies spending billions of dollars on their own stock? Well...the stock market works on supply and demand just like everything else in the free market. When people want the merchandise...if there is less of it...it will demand a higher price. See where I'm going with this? That's right: If companies continue to buy back their stocks & the Feds engineer inflation (which means asset prices will become inflated...they'll go up), then that means that there will be more demand for stocks. This becomes especially true if companies continue to report great earnings and if we finally see the average working American begin to fund their 401(k) again because the markets have gone up so much and they want to be a part of it.
Companies have taken so much supply out of the market that eventually, when demand returns...all these stock buybacks really will matter. That time is coming. It may even be close. But so far...it hasn't happened yet.
Below is a link to YCharts.com for you to take a look at the Stock Buyback Metrics of different companies. This site works just like finance.yahoo.com or CNBC.com except it gives you charts of the fundamental stock statistics over time like P/E, Revenue, EPS, Cash on Hand, and yes, even Stock Buybacks.
Cisco Systems (CSCO) Stock Quote and Charts