NEW YORK (TheStreet) -- Jim Cramer fills his blog on RealMoney every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:
- why some investors are skeptical about this bull market, and
- how some companies have mastered the buyback.
Click here for information on RealMoney, where you can see all the blogs, including Jim Cramer's -- and reader comments -- in real time.
Masters of the Stock Buyback
Posted at 12:21 p.m. EST on Wednesday, March 5, 2014
There are buybacks and then there are buybacks. We have seen a host of companies announce share buybacks and they can sound gigantic, sound all-important, sound market-moving, and instead they just turn out to be duds. You just need to know what kind of buyback you are dealing with and how it is being executed.
The market's filled with buybacks that sound big, but look like they have been a gigantic waste of shareholders' money. Exxon Mobil (XOM), for example, a huge disappointment today, has been buying back stock consistently. Yet it has meant very little to the stock because, like it or not, it is being done in a very desultory way. We don't want buybacks from oil companies anyway. We want growth, as you can see with the relative comparisons between Exxon with its gigantic buyback, and Continental Resources (CLR) and EOG (EOG) with their collective explosive growth.
Just consider that, a year ago, Exxon stock was at $86. Now it is at $93. During that same period the stock of Continental Resources, Harold Hamm's company, has traveled from $87 to $122. EOG, the best big-cap grower in the industry, has run from $108 to $191. So much for the buyback. Exxon should be spending more money buying needle-moving properties and less money on its own stock. Continental and EOG keep plowing back money into their properties, and that's obviously been a market-rewarding choice.
Or consider the so-called monster buyback that Cisco's (CSCO) got going. If you look over the last four years, you'll see Cisco has bought back almost 10% of its float. During that same period, Cisco's stock has gone from $24 to $21.
You don't need me to tell you how disappointing that is.
That's why it's not just enough to buy back stock. You have to buy back stock with meaning and with aggressive steps, literally following the stock up as you do.
Take AutoZone (AZO), which just reported earnings yesterday. AutoZone has been by far the most aggressive and opportunistic buyer of stock of all the major companies I follow. During pretty much the same period that I used for measuring Cisco, AutoZone has shrunk its float from 49 million shares to 34 million shares. How has the stock done? How about go from $168 to $543? I am telling you, in no uncertain terms, that this buyback is what has made AutoZone's stock into one of the great performers of the era.
People don't believe it. As I mentioned in my Game Plan on Friday's Mad Money, this stock almost always seems to get hit when the company reports as someone gets bent out of joint about the quarter. Then we hear from management that the buyback is going to be consistent -- there's $727 million worth remaining in this $18 billion company's repurchase plan -- and the stock flies right back up and then some.
Who else knows how to buy back stock and have market-moving impact by sopping up supply on the down days and being right underneath the bid on the up ones? Look no further than the media companies -- Disney (DIS), Time Warner (TWX), CBS (CBS) and Viacom (VIA.B) -- all of which seem to have real game when it comes to repurchasing their own shares.
I emphasize broader themes as places to go when the market's weak. To this, let's add the list of companies that buy back their stock amazingly well and are impactful -- and, when it comes to shareholder-friendly repurchase plans, AutoZone is Exhibit A.