Goldman Sachs’ Amanda Sneider argues that a good time to buy a stock is before that company announcement a big share repurchase plan.
Since 2009, S&P 500 companies have bought back a whopping $US2.1 trillion worth of their own stock. The pace of these buybacks actually hit a record high in February. Many folks believe this aggressive buying by corporations have had at least some positive impact on stock prices, which have been in a bull market for six years.
However, since February, buyback chatter has dissipated. But that’s more a calendar matter than a change in corporate financial planning.
“The majority of companies just entered the buyback blackout period leading into the 1Q 2015 reporting season,” Goldman Sachs’ Amanda Sneider said. In other words, these companies won’t be making any major announcements until they release their quarterly earnings reports some time in mid May.
“Roughly 70% of S&P 500 firms will report 1Q results during a three week period between Monday, April 13 and Friday, May 1,” Sneider noted. “We expect S&P 500 firms will boost repurchases by 18% to $US604 billion in 2015,” she added.
But as we wait, we could see weakness in stock prices, which Sneider thinks is good news for people with some cash to invest.
“Investors should view any market pressure as a buying opportunity,” she said. “High valuations in the absence of corporate demand may weigh on stock prices. However, we expect the market will climb to 2150 around mid-year 2015 ahead of the anticipated September Fed tightening and as corporate buyback activity resumes once earnings season ends.”
Sneider recommends investors to buy a basket of companies “focused on returning cash to shareholders via buybacks and dividends.”
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