Blanket Statements Are Not For Investing

One of my biggest pet peeves is blanket statements. With regards to investing I constantly here that share repurchases are all value destructive. It seems like a  negative article a day comes out about companies repurchasing shares and destroying value. Without fail the author will bring up some overvalued company buying back shares like Cisco in the nineties at 100 times earnings. My  experience with cheap companies buying back shares has shown the opposite.

If a company has an intrinsic value of $60 and is trading at $40, than every $1 the company spends on a share repurchase increases the value of the company by $0.50. Last year Gilead started aggressively repurchasing shares at six times forward earnings ex-cash. The stock went from $32 to $42 and was one of my best investments. The two companies that I own now that are most aggressively repurchasing shares are CVS and Vodafone. Both have held up far better than the rest of the market. There is no combination that I like better than a value stock where management is aggressively repurchasing shares. I wish more of the companies I own would do so.

 

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