Stockpickr: The Top 10 Buyback Stocks

In Jim Cramer's latest book, Mad Money: Watch TV, Get Rich, he mentions that a good metric for purchasing stocks is to find companies that have been buying back as many of their shares as they can.

This indicates the companies believe their own stock is cheap, and that they can increase their earnings per share substantially by reducing the supply of shares on the market.

We have set up a portfolio of my top 10 buybacks stocks called Mad Money Buybacks, which tracks companies that have not only announced significant buybacks in the future, but have also bought back significant shares over the past year.

No. 1 on the list is IBMIBM.

A major criticism of share buybacks is that they are just used to counterbalance the increase in shares that results from giving employees stock options. However, IBM actually decreased its shares significantly last year because of its buyback. Shares outstanding at the end of 2006 were 1.6 billion, down 4.6% from the year-ago period. IBM bought back 97 million shares during the year, and has plans to continue buying back shares.

IBM has been slowly buying back its company ever since 1995, having bought back 1.2 billion shares since then. And it has made an average of 50% on every purchase, given that the average price of its stock is $62.

What I find intriguing about IBM is that among its large shareholders is Intel Capital, which invests all of Intel'sINTC money. Certainly Intel has some insight into who is buying what in technology.

Additionally, super hedge fund Citadel is a buyer of IBM. And if you believe IBM is just about mainframes and "old" technology, it's interesting to note that the PowerShares Nanotech ETF is also a shareholder.