Widely ignored by the market are the stocks that continuously reduce shares outstanding via buybacks. Buybacks routinely obtain a bad rap due to the focus on high profile failures such as Cisco Systems (CSCO) that have had stock blowups after buying at higher prices.
Not focusing on the total population of stocks makes such analysis invalid. On balance, companies that reduce outstanding shares provide for higher earnings per share and stronger rewards to shareholders. Naturally the price paid is crucial, but any company that is actively buying back shares over multiple years will ultimately dollar cost average at attractive prices.
When focusing on large, financially strong companies instead of the speculative growth stocks the results are typically better. Investors should look for stocks that year after year reduce the outstanding shares and in essence slowly take the company private. Without lifting a finger, shareholders own a much larger percentage of the earnings of the below stocks as cash flow is used to buyout shareholders not as excited about the future.
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