Analysts are constantly using quantitative screens to search the stock universe for the best-performing category. In a recent report from Merrill Lynch, Savita Subramanian, the superb strategist at the firm, gives readers a quantitative gold mine of data, and there is one sector that has not only performed well, but may indicate overall company strength.
If there was ever a measure of internal corporate bullishness, especially when a company is generating substantial free cash flow, it is how much stock the company is buying back in the open market. The Merrill Lynch team screens the top 50 S&P 500 companies for those who are buying back the most of their own company shares. The analysts track the year-to-year change in shares outstanding to come up with the top five.
Discovery Communications Inc. (NASDAQ: DISCA) owns very popular cable channels, and the company recently announced the opening of the first Discovery Adventure Park in China. The stock has performed somewhat erratically over the past year as acquisition rumors often float around the company. The Merrill Lynch data shows that its outstanding shares dropped an astounding 30.4% year over year. The shares closed trading on Wednesday at $32.43.
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Motorola Solutions Inc. (NYSE: MSI) comes in with the second largest drop of shares outstanding year over year at 15.9%. The company provides mission-critical communication infrastructure, devices, software and services in North America, Latin America, the Asia-Pacific, the Middle East, Europe and Africa. The company operates in two segments: Products and Services. The stock closed the trading day on Wednesday at $59.35.
Juniper Networks Inc. (NYSE: JNPR) has seen the combination of positive activist shareholders moves combined with a solid product cycle that has made the stock a recent networking favorite again. The company places third on the Merrill Lynch list with a year-over-year drop of 15% in the shares outstanding. The stock closed Wednesday at $26.19.
Bed Bath & Beyond Inc. (NASDAQ: BBBY) is a top retailing company and has the fourth place stock on the Merrill Lynch list of buyback leaders. The company’s outstanding shares dropped 13.8% year over year. The company operates stores under the names of Bed Bath & Beyond, Christmas Tree Shops, andThat!, Harmon, buybuy BABY, World Market and Cost Plus. The stock closed Wednesday at $67.63.
CBS Corp. (NYSE: CBS) is one of the top broadcasting stocks to buy on Wall Street, and it has continued to buy back the shares at a very solid pace. The broadcasting icon comes in fifth place on the Merrill Lynch list, with the shares outstanding dropping 13.2% year over year. The stock closed on Wednesday at $54.13.
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Major companies buy back their own stock for many different reasons, from providing pension and employee bonuses to lowering the overall float. The bottom line is that those that do this consistently believe in the value of their own shares. If they do, as a rule investors can as well.
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