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How to find companies doing smart stock buybacks

Do you want to find companies that are making smart stock buyback decisions?

This article shows you (step by step) how to set up a stock buyback screen that finds companies that are:

  • undervalued,
  • conservatively financed
  • with enough cash to fund expansion and research and development and
  • are doing stock buyback.

 

Not all buybacks are good

As you know, not all stock buybacks are good for shareholders because they are done for VERY wrong reasons. Here are a few of the worse:

  • To keep the stock price up
  • To manipulate the stock price – think stock options
  • Because everyone is doing it
  • Because borrowing is cheap
  • To lever up the balance sheet
  • To keep the high company valuation
  • To boost earnings per share
  • To counter the dilution of stock options
  • To fend off an takeover
  • To get rid of cash
  • Because an activist wants to make a quick profit

 

I am sure you can also think of a few more.

 

How to find good buybacks

I gave the idea of finding companies making good buybacks a lot of thought and put together a stock screen to help you.

 

This is the stock buyback screen

With this screen you can find companies:

  • Listed in the main developed stock markets worldwide that,
  • Over the past 12 months bought back a lot of stock but
  • Does not have a lot of debt and
  • Is undervalued.

As the screener does not have a repurchased ratio use a work-around that uses Shareholder Yield (Dividend yield + Percentage of Shares Repurchased).

This is what the screen looks for:

  • The 30% of companies with the highest shareholder yield
  • The 40% of companies with the lowest Net Debt to EBIT
  • All the main developed stock markets worldwide
  • Minimum 30 day average traded value of USD 100,000

 

The screen looked like this:

Stock_buyback_screen

 

Companies with the highest stock buybacks

To find the companies with the biggest stock buyback yield select the columns Shareholder Yield and Dividend Yield and export the result to Microsoft Excel.

In Excel calculate the buyback yield as Shareholder Yield minus Dividend Yield.

This is what it looks like. Just add the column Buyback Yield:

Stock_buyback_companies

As you can see some pretty wild stock buyback yields.

 

Remember a stock screen is just the start

Please remember a stock screen is just the starting process of your research. Verify all numbers and look if the companies have not changed substantially after the last reporting date.

To help you this is the research we do with the companies we select for the Quant Value investment newsletter: This is how we select ideas for the Quant Value newsletter

 

But these companies aren’t cheap

As you realised the above list tell you nothing about how the companies are valued. To find cheap companies with high stock buybacks I looked for companies with the best Qi Value ranking.

You can read more about the Qi Value ranking here:

Qi Value investment strategy back test

Qi Value Investment Strategy

This investment strategy is working even better than we expected +711%

 

This is the stock screen:

  • The 30% of companies with the highest shareholder yield
  • The 40% of companies with the lowest Net Debt to EBIT
  • All the main developed stock markets worldwide
  • Minimum 30 day average traded value of USD 100,000
  • Calculated the stock Buyback Yield in Excel
  • Selected all companies with a Buyback Yield above 3%
  • Sorted this list by Qi Value from low to high (low is the best Qi Value ranking)

 

This is the list of companies that came up:

Stock_buyback_companies_2

 

To find even better companies

To improve the quality of the companies even more add the Piotroski F-Score.

Take a look at the list of articles below, you will see that the Piotroski F-Score is the closest thing you get to a universal indicator to increase the return of your investment strategy.

You can read more about the Piotroski F-Score here:
This academic can help you make better investment decisions – Piotroski F-Score

Piotroski F-Score back test

Can the Piotroski F-Score also improve your investment strategy?

 

This is what the screen looks for:

  • The 30% of companies with the highest shareholder yield
  • The 40% of companies with the lowest Net Debt to EBIT
  • All the main developed stock markets worldwide
  • Minimum 30 day average traded value of USD 100,000
  • Calculated the Buyback Yield in Excel
  • Selected all companies with a Buyback Yield above 3%
  • Sorted this list by Qi Value from low to high (low is the best Qi Value ranking)
  • Selected only companies with a Piotroski F-Score greater than 6. (9 is the best F-Score and 0 the worse)

 

Stock_buyback_companies_3

 

That is all you have to do to find companies making smart buyback decisions.

 

You can save this screen

As with all screens in the Quant Investing stock screener you can save this screen so you can call it up with only a few mouse clicks.

 

PS To implement this stock buyback investment strategy in your portfolio click here: Join today

PPS It is so easy to put things off or forget why don’t you sign up right now?