As stock buybacks have begun to slow down, Jim Cramer from CNBC recently shared insights about why some companies still benefit from these practices. According to Goldman Sachs Analyst David Costin, despite the slowdown, firms that continue to repurchase their shares are being rewarded by investors.
Costin highlighted, “While buybacks are less frequent, there’s good news. Investors are still favoring companies that buy back shares. That offers a sort of edge. A portfolio rich in buybacks can outperform others—it’s not completely foolproof, but it might just be the key to effective stock picking.”
Cramer emphasized the importance of buybacks, noting that they help manage supply within the market. He explained that when many stocks enter the market through IPOs without an influx of new capital, stock prices could drop. Buybacks, he suggested, play a role in correcting these supply and demand imbalances.
In a recent analysis, Costin mentioned his continued support for stock buybacks, particularly highlighting how S&P 500 companies performed well earlier in the year but faced a decline later, often shifting focus to increase capital expenditures instead.
Costin also pointed to companies known for consistent share reductions over the years as outperformers in this context. He referred to these firms as “the noblemen of buybacks,” indicating those that have decreased their shares by at least 1% for at least nine years in the past decade.
Cramer noted that stocks from Costin’s “buyback aristocrats” tend to fare better during economic downturns. He specifically mentioned Wells Fargo and Apple, citing that their significant share repurchases indicate strong management confidence. Apple’s status as a “buyback aristocrat” further supports the belief that investors should hold this stock for the long term.
Disclaimer: The CNBC Investing Club holds shares in Wells Fargo and Apple.
