Cramer Back to Endorsing Share Buybacks

I didn’t think he would go back to this, but Cramer is actually back in favor of discussing "Share Buyback Plans" from companies as being a catalyst.

You can watch his daily videos, and here is the link for this one titles BUYBACK SURPRISE on TheStreet.com.

Cramer said he thought no buyback would do what he is seeing now, as the supply of stock is being taken off of the market.  Cramer noted that there are 29 buyback programs out of the 30 DJIA component stocks.  He notes 3 oil buybacks: Exxon (XOM), Chevron (CVX), & ConocoPhillips (COP) because they have taken out enough supply of stock off the market.  He thinks these are the easiest stocks to buy into year-end:  Cramer thinks XOM will blow through $80 now, COP could tack on 10-points, and CVX is at the end of its $5B buyback and it will go up $2 when they announce a new buyback plan.   

Cramer is also positive on techs & financials still and he thinks the tech trade isn’t done, and they’ll rally through the end of the year.  The mortgage weakness isn’t going to kill financials, and with Citigroup (C) under $50 and Bank of America (BAC) down on the CFO leaving he’d buy into them before the fed starts cutting rates.

I have my own opinions on share buybacks.  They are good in teh sense that they eliminate a lot of the loose float out there in the stock market, but they also chew up a corporate balance sheet.  If the underlying company is really going to be strong and stable in the next two to three years then buybacks are fine, but if a company is in a capital intensive business then companies need to be careful about buybacks.  It also can be viewed as a notion that the company isn’t going to use its own cash and resources to go make acquisitions that could add more growth, but I will warn you that many investors will say that is blasphemy.

Anyhow, I thought this was an interesting twist since Cramer has poo-poo’d buybacks of late or at least been acting like he doesn’t care.  For the last few weeks he has been more favorable and more receptive to dividend paying strategies.  To me a dividend is a true return of capital to shareholders, where share buybacks tend to signal a semi-floor in a stock.  The most important thing to remember is that not all buybacks are created equal and that when a company issues a press release that they are "Authorizing a $2 Billion share buyback plan" that the company has that "at their discretion" but they are not bound to spend $2 Billion (or $200 million for that matter) on genuinely repurchasing shares.

Jon C. Ogg
December 5, 2006