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Tech Companies Buying Back Shares Most Aggressively

- By Holly LaFon

Share repurchases have been all the rage among S&P 500 constituents in recent years. The trend hit a peak in 2018, when corporate buybacks set a record for the third consecutive time in the third quarter. Companies' spending on their own shares rose 6.9% from the second quarter to surpass $200 billion for the first time, reaching $203.8 billion, according to S&P Dow Jones Indices.

Data showed that the tech sector was the most aggressive buyer in the third quarter. Companies in the sector spent $82.3 billion on repurchases, up 15.1% from the second quarter and 21.6% from the third quarter of 2017. Its spending represented a full 40.4% of the index's total for the quarter.

In a CNBC article Friday, analysts suggest the momentum could continue into 2019, with JPMorgan saying it expects index companies to buy back $800 billion in shares for the year.

"Despite the recent market volatility, buyback activity has been very strong during the fourth quarter and we expect it to remain robust in 2019 given profit growth, lower valuation, and a record high $700 billion available to execute under existing authorizations," Lakos-Bujas wrote in a note to clients that CNBC reported.

Warren Buffett (Trades, Portfolio), chairman and CEO of Berkshire Hathaway (BRK.A)(BRK.B), has praised repurchases, but only in the right circumstances. For instance, in a 2016 shareholder letter, Buffett said they "only make sense" if bought "at a price below intrinsic value." Also, companies may harm shareholders if they repurchase below intrinsic value and the money would be better spent expanding the business or a potential acquisition offers greater value.

"Before even discussing repurchases, a CEO and his or her Board should stand, join hands and in unison declare, 'What is smart at one price is stupid at another,'" Buffett said.

In 2018, tech executives were repurchasing shares as the S&P 500 Information Technology index declined 0.29% for the year, following a 38.83% advance in 2018. The tech companies buying back stock at the highest rates over the past year are: Qualcomm Inc. (QCOM), Hewlett Packard Enterprise Co. (HPE), Corning Inc. (GLW), Juniper Networks Inc. (JNPR) and Oracle Corp. (ORCL).

Qualcomm Inc. (QCOM)

Qualcomm has a share buyback rate of 17.3% for the past year. From Sept. 30, 2017, to Sept. 30, 2018, Qualcomm's stock advanced roughly 39%, but with considerable volatility. In the fourth fiscal quarter of 2018, ended Sept. 30, Qualcomm's management authorized a further $30 billion stock repurchase program with an expected completion date of year-end 2019.

Hewlett Packard Enterprise Co. (HPE)

Hewlett Packard Enterprise's buyback rate totaled 10.8% for the past year. For the fiscal year ended Oct. 31, the company's share price gained about 2.45%. The company repurchased $4.1 billion in shares, an increase from 39% in the previous year, in which its price gained about 11%. At fiscal year-end, Hewlett had $4.7 billion remaining on its share repurchase authorization. In its annual report, the company said it would repurchase shares when they trade "at a discount relative to estimated intrinsic value."

Corning Inc. (GLW)

Corning had a one-year buyback rate of 9.6%. For the year ended Sept. 30, its price gained about 18% overall, with large variances. The company in April approved a $2 billion repurchase program with no expiration date. In the nine months ended Sept. 30, it bought back 63.4 million shares for $1.9 billion as part of the program.

Juniper Networks Inc. (JNPR)

Juniper Networks' one-year share buyback rate is 8.6%. For the year ended Sept. 30, the stock's price gained about 8% overall with choppy trading. Juniper's board implemented a repurchase program of $2.0 billion in January, replacing its 2014 authorization. For the nine months ended Sept. 30, it repurchased $750 million in shares, an increase from $390 million in the same period of 2017. Its average price per share was $25.62. As of Sept. 30, Juniper has $1.3 billion in funds remaining under its repurchase authorization.

Oracle Corp. (ORCL)

Oracle Corp. has a one-year buyback rate of 8.6%. The company's stock gained about 6% for the year ended Sept. 30. On Sept. 17, Oracle approved the expansion of its stock repurchase program by $12 billion. As of Nov. 30, it had $9.8 billion remaining under the program, which has no expiration date. Management will make the purchases depending on working capital needs, cash, debt obligations, its stock price, and economic and market conditions, the company said in its fiscal second quarter of 2019 filing.

Oracle repurchased 415.3 million shares for a cost of $20 billion in the six months ended Nov. 30, an increase from 50.9 million shares for $2.5 billion in the same period a year ago.

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This article first appeared on GuruFocus.