The Coming Resurgence of Buybacks, a Biotech Update, and Readers Weigh in the Alphabet Stock Split

Using buybacks to goose a stock can be controversial... There are plenty of examples where they're little more than good money chasing bad – a last-ditch effort by some companies to prop up their sagging stocks. Other businesses see it as a great use of money, but only if there is no better use of […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] The Coming Resurgence of Buybacks, a Biotech Update, and Readers Weigh in the Alphabet Stock Split By Herb Greenberg Using buybacks to goose a stock can be controversial... There are plenty of examples where they're little more than good money chasing bad – a last-ditch effort by some companies to prop up their sagging stocks. Other businesses see it as a great use of money, but only if there is no better use of corporate cash. Or as investing legend Warren Buffett put it in 2011... When stock can be bought below a business's value it is probably the best use of cash. Regardless of the reason, with so many stocks having recently been hammered down from their highs, my old friends John Del Vecchio and Brad Lamensdorf from research firm LMTR think it's very possible that we may be about to see a bumper crop of buybacks. As they wrote in a recent [blog post](... There are simply too many bears right here, right now. There's a turning point... With earnings season just ending, most companies are emerging from a period surrounding their earnings when they can't trade in their own stock... better known as the "blackout period." According to John and Brad, we're now three-quarters through the period. Take a look... As John and Brad wrote in their blog, "the blackout period is fading at a time of extreme pessimism in the market." They went on to explain... As companies come out of the dark and buy back stock, it could be supportive of share prices. The blackout period is fading at a time of extreme pessimism in the market. Historically, that can lead to a sharp upswing in stock prices... of course, in a market this volatile, all bets are off. --------------------------------------------------------------- Recommended Links: [The Biggest Innovation of the 21st century - Steve Jobs (Hint: Not Apple)]( Just before his death in 2011, the founder of Apple said that the biggest innovations of the 21st century will be at the intersection of biology and technology. Exactly a decade later, one little-known company is doing just that. The company already has million-dollar deals with fortune 500 companies. And Steve Jobs' biggest rival, Bill Gates, has already invested millions in this company, which has the potential to become "[America's Next Big Monopoly]( --------------------------------------------------------------- [80% CRASH coming?]( The analyst behind 24 different triple-digit winners just gave what he calls the most important interview of his life. He thinks the market could be on the verge of an 80% collapse. He lays out all the proof... plus a detailed plan for exactly what to do. (Hint: It doesn't require shorting, options, or "timing the market.") [You must see this interview today](. --------------------------------------------------------------- Up next, a biotech update... In the [February 1 Empire Financial Daily]( – titled, "The Great Biotech Disconnect" – I questioned whether we are seeing a bubble in the biotech real estate market. Using my home city of San Diego as an example, I noted how there seemed to be a new real estate deal every week, as rents for lab and office space skyrocketed. Well... earlier this week, the Financial Times ran [an article]( noting that the biotech firms – especially the younger ones – are running out of cash... Scott Kay, founder of Asymmetry, which closed last month, said all biotech and healthcare-focused managers with a single fund with less than $2 billion in assets under management would have to make difficult decisions on whether to continue operating, sell or shut down. "We are in a new world as the Fed tightens after 12 plushy years of loose conditions," he added. Kay said many biotechs came to market too early and their valuations were not deserved as they did not yet have clinical data. That in turn pushed up the demand for labs and office space... and therein, lies the concern. Moving on, in the mailbag, I received plenty of feedback on Google parent company Alphabet's (GOOGL) stock split... I was surprised just how big of a deal the announcement of a 20-for-1 stock split would turn out to be. There certain was no shortage of opinions from Empire Financial Daily readers, so I'll take the rest of today's essay to run some of them with my comments... "Hi, Herb. You avoided mentioning the most obvious reason for the 20-1 Google split, and that is that it must be time to rejigger the DJIA." – Bill C. Herb comment: Bill, it's certainly something that was immediately mentioned in the press as a possibility. Was that a primary driver? I would say possibly... but not probably. "Hi Herb, I used to read your column regularly in the SF Chronicle way back when. "Regarding stock splits, another reason we little people like them is that it makes options trading much less expensive. Trading a contract of 100 shares can be difficult when a stock is valued as high as GOOGL has been. Just my 2 cents." – Bob H. "I like that GOOGL is splitting. I know that the value is the same but I like to buy a stock and sell covered calls to generate income while getting gains. At $3000 it would have been imprudent of me to try that strategy with GOOGL. So, it does put it within reach of smaller investors." – Phillip B. "Re: GOOG stock split. One aspect not mentioned relates to options availability to small investors like myself. Many of my stock purchases are made from selling cash-covered puts. Dealing with E-mini options is cumbersome." – John B. "Herb, Your comments on stock splits sound like Wall Street jargon. Please remember that there are quite a few middle class investors reading Empire Financial who are looking for income. My IRA has about $450K in stock and to generate income, I sell covered calls. When I learned about the stock split I purchased 5 shares of Alphabet so that post split I will be able to sell a covered call. In my IRA. I can buy back the shares that might be called away at a profit immediately. Please think about those of us who do not have millions in our IRAs and would love to be able to trade call options for income." – John S. "Hi Herb, Another reason I like the lower split GOOGL price is I'll be able to buy 100 shares and sell a call option against the shares. Is too high for me at $3000/share." – Jay T. "The 20:1 stock split will not change anything in GOOG value but will enable retail investors to use options to maximize the return on the investment. It is not about trading, I'm not a trader, it is all about investing returns." – Alon H. Herb comment: Bob (great to have you reading me again, by the way!), Phillip, John B., John S., Jay, and Alon – if the betting was on any single reason, based on my inbound e-mail options would certainly be the winner. It may not be the primary reason, but at the board level – where these decisions are made – "shareholder friendly" was likely a strong consideration. "Hello Herb, I am one, not unlike your friend mentioned in today's article, that thinks a stock is more attractive after a split. Though I do understand that the value of your position is the same post-split, I still cannot wrap my head around stocks moving in percentages and not dollars. "If you own 1 share at 3,000 and the stock goes up a dollar, you've made a buck, and if you own post-split say 20 shares at 150 and the stock goes up a buck, you've made 20 bucks. "Now, I do get that stocks that are highly priced (not based on a company's value- I mean highly priced in that I don't have 3k to go out [and] buy 1 share) might have a better chance at making you money then say a $10 stock that you own because you could buy more shares of that $10 stock but it's not going anywhere! "And I also get that if both the $3,000 and the $10 stock go up a percent in a day, I've made more money with the $3k stock- but when I log in to my account- I don't look at the percentage performance of my portfolio, I look at how many dollars I'm up or down today, because I can't put a percentage in the bank. Really, the only time I look at percentage is if I have to sell out of a position to add to another existing one, or start a new position, I'll look to sell out of stocks that percentage wise aren't performing as well. Where is my thinking off the mark here? I have only been trading for 4 years now, and half the time I read all these numbers and I don't know what the heck I'm reading, but I look at a company and what it offers and what its engagement is, and if I like those things I start putting some money into it. But all the time I read things about stocks moving in percentages and not dollars and I just can't quite understand that. Could you take a shot at straightening me out?" – Jimmy B. Herb comment: Jimmy, I fully understand your confusion... but as I tried to explain in the essay, lower price doesn't equal bigger gain or better investment. In fact, after a split the stock should move by the same percentage as it would have pre-split. The use of percentages in the media is just because it's easier to explain – and big gains are headline-worthy. But beyond that, it's a number game and the post-split price is adjusted to reflect the same underlying economic values of the company. And something else to consider: Your entire experience in the market is during one of the greatest and fastest bull markets ever. Some of those big gains you enjoyed, seemingly day-in, day-out, were and are unsustainable. They weren't real... they were pushed up by supply and demand in a market ruled by the fear of missing out. Once that ended, so did that imbalance. And as you've seen in some of these, if they rose too fast to unrealistically high levels, they can fall even faster. We can't offer personalized investment advice, but my best tip based on your question is not to be fooled by a low stock price versus another with a higher price. Real investing simply doesn't work like that. "Herb, are you familiar with Terry Goodkind? Realty is irrelevant; perception is everything. "But I'm not one to criticize, as I also fall victim to this. I look at Amazon or Google, and think to myself, what am I going to do, buy 10 shares? But 200 shares at 150, that's a different story. And that's because the stock only has to go up 150 points to double, not 3000 points, right? Of course, the stock would only have to go down 75 points to have its valuation halved, not 1500 points. But no one ever thinks that that might happen." – Sherwin R. Herb comment: Sherwin, it's a psychological mind game. Imagine if we had this same discussion 30 years ago about Berkshire Hathaway (BRK-A), when the A-shares were trading at around $9,000 (they're currently around $480,000) Sometimes slow and steady really does win the race, as Berkshire did... leaving the entire market in the dust. "RE Stock splits – Guy orders a large pizza. The waiter asks, 'Would you like me to cut it into four pieces or eight?'. The man replies, 'Better just cut it into four. I don't think I can eat eight pieces.' Have a great weekend." – Frank G. Herb comment: Bingo, Frank! As always, feel free to reach out via e-mail by [clicking here](mailto:feedback@empirefinancialresearch.com?subject=Feedback%20for%20Herb). And if you're on Twitter, feel free to follow me there at [@herbgreenberg](. My DMs are open. I look forward to hearing from you. Regards,  Herb Greenberg February 11, 2022 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2022 Empire Financial Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Empire Financial Research, 601 Lexington Ave., 20th Floor, New York, NY 10022 [www.empirefinancialresearch.com.]( You received this e-mail because you are subscribed to Empire Financial Daily. [Unsubscribe from all future e-mails](