Morning Report Monday 30 June 2014
Companies are buying their own shares: Is this a positive impact?
I read a fascinating article in the Wall Street Journal today that pointed out companies buying their own shares are currently the single largest buyer of stock in the USA. Companies spent almost $600 billion on stock buybacks last year, the second largest in history since 2007. One of the main impacts is the reduction in the number of issued shares, this leads to an increase in earnings per share, even if the earnings actually go nowhere - making management look good! A large US Investment Bank recently predicted $9 billion worth of share buybacks this year. Warren Buffett believes companies should consider buying back shares only if the shares are undervalued based on the company’s earnings, sales, book value or other valuation criteria; I am not convinced this is always the case. Who are net buyer /sellers of equities at present in the USA?
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