BIANCO: These 10 Stocks Could See EPS Surge Over 40% Thanks To Shrinking Share Counts

seinfeld shrinkageStock market shrinkage.

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In his latest note to clients, Deutsche Bank chief US equity strategist David Bianco lays out the case for investing in stocks to capture gains driven by share buybacks.Basically, Bianco argues that “vanishing” equities will cause stocks to rise as supply struggles to meet demand.

His report includes a list of 50 stocks of non-financial companies in the S&P 500 that should experience the most earnings per share accretion due to massive stock buy backs.

These are companies who have the balance sheets to support future buybacks.  Here’s his calculation:

Potential EPS accretion = New EPS yield after share repurchase/ Current EPS yield -1
New EPS yield = (EPS yield – Unused debt capacity * after tax cost of debt) / (1-Unused Debt Capacity)

From Bianco’s list of 50, we pulled the 10 stocks that could see more than 40 per cent of EPS accretion.  We include Deutsche Bank’s rating on each stock.  Note, just because share count may shink doesn’t necessarily mean the stock is a good buy.

#1: Cisco Systems (CSCO)

Industry: Communications Equipment

Potential EPS accretion: 84.6%

Unused debt capacity: 53.8%

2012 EPS yield: 11.0%

Deutsche Bank rating: Buy

Description: Cisco Systems manufactures networking products like routers, wireless access points, and switches that connect computers around the world.

Source: Deutsche Bank

#2: Agilent Technologies (A)

Industry: Life Sciences Tools & Services

Potential EPS accretion: 65.2%

Unused debt capacity: 53.0%

2012 EPS yield: 7.9%

Deutsche Bank rating: N/A

Description: Agilent Technologies is a manufacturer of medical and scientific laboratory equipment.

Source: Deutsche Bank

#3: Stryker Corp (SYK)

Industry: Health Care Equipment & Supplies

Potential EPS accretion: 55.4%

Unused debt capacity: 48.7%

2012 EPS yield: 8.0%

Deutsche Bank rating: Buy

Description: Stryker Corp is a manufacturer of medical equipment and technology with a large presence in orthopedics, medical implants, and medical imaging technologies, among other things.

Source: Deutsche Bank

#4: Microchip Technology (MCHP)

Industry: Semiconductors & Semiconductor Equipment

Potential EPS accretion: 49.5%

Unused debt capacity: 36.6%

2012 EPS yield: 6.6%

Deutsche Bank rating: N/A

Description: Microchip Technology is a manufacturer of semiconductors for various uses including computer memory.

Source: Deutsche Bank

#5: AmerisourceBergen Corp (ABC)

Industry: Health Care Providers & Services

Potential EPS accretion: 48.1%

Unused debt capacity: 45.7%

2012 EPS yield: 7.8%

Deutsche Bank rating: N/A

Description: Amerisource-Bergen is a wholesale distributor of pharmaceuticals.

Source: Deutsche Bank

#6: Merck & Co (MRK)

Industry: Pharmaceuticals

Potential EPS accretion: 47.9%

Unused debt capacity: 38.8%

2012 EPS yield: 10.2%

Deutsche Bank rating: Buy

Description: Merck is one of the largest manufacturers of pharmaceuticals in the world, with a portfolio including Gardasil, Clarinex, Tinactin, and Lotramin, among many others.

Source: Deutsche Bank

#7: Johnson & Johnson (JNJ)

Industry: Pharmaceuticals

Potential EPS accretion: 47.5%

Unused debt capacity: 40.9%

2012 EPS yield: 7.8%

Deutsche Bank rating: Hold

Description: Johnson & Johnson is a large international pharmaceuticals and consumer goods company with a portfolio that includes well known products like Band-Aids, Tylenol, and Acuvue, among many others.

Source: Deutsche Bank

#8: Colgate-Palmolive Co (CL)

Industry: Household Products

Potential EPS accretion: 47.2%

Unused debt capacity: 32.7%

2012 EPS yield: 5.5%

Deutsche Bank rating: Buy

Description: Colgate-Palmolive manufactures household and hygiene products like toothpaste and detergents.

Source: Deutsche Bank

#9: Microsoft Corp (MSFT)

Industry: Software

Potential EPS accretion: 42.9%

Unused debt capacity: 37.7%

2012 EPS yield: 9.3%

Deutsche Bank rating: Buy

Description: Microsoft manufactures personal computers and widely-used operating systems and business software like Windows and Microsoft Office.

Source: Deutsche Bank

#10: Cardinal Health Inc (CAH)

Industry: Health Care Providers & Services

Potential EPS accretion: 40.1%

Unused debt capacity: 40.5%

2012 EPS yield: 7.8%

Deutsche Bank rating: N/A

Description: Cardinal Health is a wholesale distributor of pharmaceuticals and manufacturer of medical supplies.

Source: Deutsche Bank

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