Continuing the Conversation on Stock Buybacks

In the March 2 Empire Financial Daily, I discussed the merits of stock buybacks... To briefly recap, I pointed out a couple of key factors to consider: Stock buybacks alter the supply of a company's stock, so – all other things held equal (including demand for the stock) – that should then lead to higher […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] Continuing the Conversation on Stock Buybacks By Enrique Abeyta --------------------------------------------------------------- [GOING OFFLINE: Wall Street Legend's No. 1 AI Stock for 2023]( A new technology has emerged that could change the world forever. Forbes calls it "one of the great transformational technologies of the 21st century." And the New York Times says it has "set off a feeding frenzy among investors." Now, a 25-year Wall Street veteran has pinpointed the TOP STOCK at the center of Silicon Valley's latest craze. [Get the details on his No. 1 AI stock for 2023 here before it's too late](... --------------------------------------------------------------- In the [March 2 Empire Financial Daily]( I discussed the merits of stock buybacks... To briefly recap, I pointed out a couple of key factors to consider: - Stock buybacks alter the supply of a company's stock, so – all other things held equal (including demand for the stock) – that should then lead to higher prices. - I showed how this can play out successfully in stock prices with the incredible example of the stock of auto repair retailer AutoZone (AZO). - I also pointed out that the system of "checks and balances" along with incentives were such that the vast majority of the time, management teams are making the right decision in executing a buyback... or at least what they think is the right decision based on the information they have at the time. This last concept gets to where buybacks fail to produce value... The most obvious example is when a company is buying back a ton of stock and then the stock collapses. A recent example of this is Facebook parent Meta Platforms (META). Take a look at the company's stock buyback activity by quarter across the past few years... In 2022, Meta bought back more than $27 billion worth of stock. This happened as META shares collapsed from $336 at the start of 2022 to a low just north of $90 per share in November 2022. In the first quarter of 2022, Meta bought back nearly $10 billion worth of stock with the average price being somewhere around $250 per share. Outside of 2022, the company bought back an amazing $43 billion of stock likely bought above a share price of $300. Did Meta make a mistake? Well, given that META shares would proceed to go to $90 and sit at around $190 today – the obvious answer would seem to be yes. --------------------------------------------------------------- Recommended Link: [The EV Story No One's Telling]( Forget batteries, energy storage, charging stations, chips and everything else you've heard about Electric Vehicles... Because the biggest EV story everyone's missing is THIS. It's a brand new asset that the International Monetary Fund claims should rise 24,900%. [Just click here now to find out how to stake YOUR claim in this secret asset today](. --------------------------------------------------------------- However, the situation is much more nuanced when you look through the details... A good portion of this buyback – roughly one-third – was used to offset stock-based compensation for employees. This is an entirely different debate and one that I'll perhaps tackle in a future discussion... but in this sense, Meta was offsetting dilution. Net-net, this is the company using the buyback as compensation and it's appropriately reflected in the profit and loss statement. Again, we could get into a debate on whether employees should have been given that much compensation... but I am supportive of using buybacks to create net dilution of zero to shareholders. That still leaves the issue of the other two-thirds of the buyback – shares that were bought back at much higher valuations than the stock saw in late 2022 or where it stands today. Had Meta been more patient, it could have spent the same amount of capital and had 2 times to 3 times the impact on the share count. Across my publications here at Empire Financial Research, I have discussed human psychology and the role that it plays in trading... The vast majority of large public corporations are no different – they are bad traders! One of the most common trading mistakes is to extrapolate recent history into what will happen in the future. This is a tricky one, because most often the recent history is a good indicator of what happens next... but at extremes, it can become a contrary indicator. In my Empire Elite Trader service, I often talk about overbought/oversold signals and our favorite indicator – the relative strength index ("RSI"). From both a corporate performance and stock performance perspective, Meta had an incredible run off the back of 2020 and the pandemic period. With folks staying home, the company's operations boomed... and so did the stock price. Management looked at a huge pile of cash, a strong business, and a soaring stock price and likely thought it would continue and that the stock was a good buy. Of course, as we know now, the stock price didn't maintain those highs. Just about every public company out there could do better to have some real trading and investing experience on the board... Of course, management will argue that it is focused on building operations and that if it does that successfully, the stock price will follow. As regular readers of my work know, though, stocks are just pieces of paper and in the short and intermediate term (and sometimes even the longer term) have only a tangential relationship to the company's performance. If you are running a public company and are going to buy stock back, why not have some people on the board that actually know how to trade stocks? Again, management is making one of the most common mistakes in trading and investing – mistaking stocks for companies. Sound trading principles work just as well for companies buying back their stock as they do for everyday traders. Regards, Enrique Abeyta March 14, 2023 Editor's note: Enrique has made an explosive discovery... one that could help you see gains as high as 1,000%. In short, it's a little-known stock that's at the center of a $15 trillion technology. In a special presentation, he's sharing the full story... but it's only available until midnight tonight. Don't delay – [watch it right here before it goes offline](. --------------------------------------------------------------- If someone forwarded you this e-mail and you would like to be added to the Empire Financial Daily e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 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, 380 Lexington Ave., 4th Floor, New York, NY 10168 [www.empirefinancialresearch.com.]( You received this e-mail because you are subscribed to Empire Financial Daily. [Unsubscribe from all future e-mails](