You know not all stock buybacks are good for you as a shareholder.
If a company’s stock is undervalued, it is conservatively financed, and it has enough cash to fund expansion and research and development it’s a great deal for shareholders.
Examples of bad stock buybacks
Sadly, a lot off buybacks are done for VERY wrong reasons. Here are a few of the worse:
- To keep the stock price up
- To manipulate the stock price – think to have stock options in the money
- Because everyone is doing it
- Because borrowing is cheap
- To lever up the balance sheet
- To keep the high company valuation
- To boost earnings per share
- To counter the dilution of stock options
- To fight off a takeover
- To get rid of cash
- Because an activist wants to make a quick profit
I am sure you can think of a few more reasons.
How to find companies making good buybacks
I recently gave the idea of finding companies making healthy buybacks a lot of thought and put together a stock screen to help you find them.
This is the screen
With this screen I wanted to find companies:
- Listed in the main stock markets worldwide that,
- Over the past 12 months bought back a lot of stock but
- Did not have a lot of debt and
- Was undervalued.
This is what I screened for:
- The 30% of companies with the highest stock buyback yield - Buyback % in the screener
- The 40% of companies with the lowest Net Debt to EBIT
- All the main developed stock markets worldwide
- Minimum 30 day average traded value of $100,000
Click here to start finding great buyback stocks NOW!
The screen looked like this:
Click image to enlarge
Companies with the highest stock buybacks
To find the companies with the biggest stock buyback yield click the Buyback % column heading twice.
This is the list of companies the screen I came up with, sorted by buyback yield:
Source: Quant Investing stock screener
As you can see some pretty wild stock buyback yields.
Finding cheap high buyback yield companies - Qi Value
But the above list tell you nothing about how the companies are valued. To find cheap companies with high stock buybacks I looked for companies with the best Qi Value ranking.
You can read more about the Qi Value ranking here:
Qi Value investment strategy back test
This investment strategy is working even better than we expected +711%
This is what I screened for:
- The 30% of companies with the highest Buyback Yield
- The 40% of companies with the lowest Net Debt to EBIT
- All the main developed stock markets worldwide
- Minimum 30 day average traded value of $100,000
- Selected all companies with a Buyback Yield above 3%
- Sorted this list by Qi Value from low to high (low is the best Qi Value ranking)
Click here to start finding great buyback stocks NOW!
This is the list of companies that came up:
Source: Quant Investing stock screener
Finding cheap high buyback yield companies - Value Composite One
I also ran the screen with Value Composite One as valuation ratio.
This is what I screened for:
- The 30% of companies with the highest Buyback Yield
- The 40% of companies with the lowest Net Debt to EBIT
- All the main developed stock markets worldwide
- Minimum 30 day average traded value of $100,000
- Selected all companies with a Buyback Yield above 3%
- Sorted this list by Value Composite One from low to high (low is the best Qi Value ranking)
Here is the list of best ranked companies:
How to find cheap high quality buyback companies - Piotroski F-Score
To improve the quality of the companies even more I added the Piotroski F-Score.
Take a look at the list of articles below, you will see that the Piotroski F-Score is the closest thing you can get to a universal indicator to increase the return of your investment strategy.
You can read more about the Piotroski F-Score here:
This academic can help you make better investment decisions – Piotroski F-Score
Can the Piotroski F-Score also improve your investment strategy?
This is what I screened for:
- The 30% of companies with the highest Buyback Yield
- The 40% of companies with the lowest Net Debt to EBIT
- All the main developed stock markets worldwide
- Minimum 30 day average traded value of $100,000
- Selected all companies with a Buyback Yield above 3%
- Selected only companies with a Piotroski F-Score greater than 6. (9 is the best F-Score and 0 the worse)
- Sorted this list by Qi Value from low to high (low is the best Qi Value ranking)
Source: Quant Investing stock screener
That is all you have to do to find companies making smart buyback decisions.
Please remember a screen is just the starting process of your research. Verify all numbers and look if the companies have not changed substantially after the last reporting date.
To help you this is the research we do for the companies we select for the Quant Value newsletter: This is how we select ideas for the Quant Value newsletter
Click here to start finding great buyback stocks NOW!
You can save this screen
As with all screens in the Quant Investing stock screener you can save this screen so you can call it up with only a few mouse clicks.
PS To implement this stock buyback investment strategy in your portfolio click here: I want to sign up NOW!
PPS It is so easy to put things off or forget why don’t you sign up right now?
