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21 stocks set to surge as companies spend billions buying their own shares, according to Deutsche Bank
21 stocks set to surge as companies spend billions buying their own shares, according to Deutsche Bank
Akin OyedeleMar 15, 2018, 15:40 IST
Shoppers reach for television sets as they compete to purchase retail items on Black Friday at a store in Sao Paulo, Brazil, November 24, 2016.Nacho Doce/Reuters
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Several companies have said they plan to spend the gains from tax cuts on paying debt, capital investments, dividends, and buying back their stocks.
In recent years, share buybacks have been a key source of support for the stock market's gains. In 2018, buybacks are on pace to break their previous annual record, adding up to about $800 billion, JPMorgan analysts estimated.
"Our projection of a notable inflection in buybacks should provide a significant boost to the demand-supply gap and buybacks alone drive price gains of 12% to around our year-end target of 3000 for the S&P 500," said Binky Chadha, Deutsche Bank's chief global strategist, in a note on Tuesday.
But buybacks won't profit all stocks equally, Chadha added. His note included a list of companies with characteristics that have helped investors predict buyback announcements, and which lead to outperformance afterwards. These are high free-cash-flow yield, low capex relative to sales, high return on equity, low debt leverage, and strong price momentum.
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"The basket has historically outperformed the S&P 500 (+4.8pp a year) and other simple buyback strategies (+3pp)," Chadha said.
