In this article, we take a look at 10 value stocks with big buybacks.
Value stocks are stocks that arguably trade below their intrinsic value. Although the intrinsic value of a stock is subjective because different people can have different prices on what they think a stock is worth, many investors view the stocks of high quality companies with long term growth potential and reasonable forward P/E ratios as value stocks.
Many high quality companies trade for lower valuations at the beginning of 2023 given the uncertain macroeconomic climate of rising interest rates, high inflation, and a potential recession this year.
In 2022, the Federal Reserve has increased interest rates substantially and the U.S. central bank is expected to raise interest rates even further this year. If the central bank raises rates too much, there could be a recession that could put pressure on stocks.
Nevertheless, if the macroeconomic climate normalizes, valuations could potentially normalize and help the stock prices of many high quality companies in the long term.
Some value companies are also companies with big share buybacks.
Companies buy back stock to reduce the number of shares outstanding. If they don’t issue new stock, reducing the number of shares outstanding could potentially increase their earnings per share if they are profitable and their profits remain the same or rise. If a company’s earnings per share rises substantially, its stock could potentially benefit if its price to earnings valuation remains the same.
Share buybacks have the advantage of being more flexible than dividends in terms of their timing. While dividends are usually but not necessarily periodic, share buybacks don’t have a set schedule.
Share buybacks have historically also been more tax advantageous than dividends.
While inflation and interest rates will eventually normalize, 2023 could be a volatile year like 2022. If economic data fails to meet estimates, there could be more downside for both the market and value stocks before macroeconomic conditions normalize. As a result, it could be a good idea to own a diversified portfolio of stocks across many different sectors.
New York Stock Exchange
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Methodology
For our list of 10 Value Stocks with Big Buybacks, we used preliminary S&P 500 stock buyback data for Q3 2022 from the S&P Dow Jones Indices and we selected 10 stocks from the list of top 20 buyback stocks that arguably trade below their long term intrinsic value.
We ranked the stocks by the amount of buybacks they did in the third quarter per the preliminary S&P 500 stock buyback data.
We also included the number of hedge funds in our database which held shares in the same stock at the end of Q3.
For those of you interested, check out 15 Companies That Are Buying Back Their Stock.
10 Value Stocks with Big Buybacks
10. Union Pacific Corporation (NYSE:UNP)
Q3 2022 Buybacks (Million): $2,024
Number of Hedge Fund Holders: 74
Union Pacific Corporation (NYSE:UNP) is one of the United States’ largest railroads that operates from all major West Coast and Gulf Coast ports to eastern gateways. Given railroads take a lot of time and capital to construct, the industry is an oligopoly with only a few firms.
Although the macroeconomic climate has been challenging, Union Pacific Corporation (NYSE:UNP) has nevertheless affirmed pricing gains in excess of inflation dollars for 2022. The company also reported adjusted earnings per diluted share of $3.19 per share for Q3 2022 with adjusted operating income up 13%. In the third quarter, Union Pacific Corporation (NYSE:UNP) bought back over $2 billion worth of shares, ranking among the top 20 among S&P 500 companies which did buybacks in the period. For 2022, Union Pacific Corporation (NYSE:UNP) sees full share repurchases of $6.5 billion.
If the company grows earnings and the macroeconomic climate normalizes, Union Pacific Corporation (NYSE:UNP)’s current valuation could be attractive long term given the forward P/E ratio of 17.7.
Alongside Microsoft Corporation (NASDAQ:MSFT), Meta Platforms, Inc. (NASDAQ:META), and Apple Inc. (NASDAQ:AAPL), Union Pacific Corporation (NYSE:UNP) is a stock arguably trading below its intrinsic value that has bought back a substantial amount of shares in Q3.
9. Johnson & Johnson (NYSE:JNJ)
Q3 2022 Buybacks (Million): $2,165
Number of Hedge Fund Holders: 85
Johnson & Johnson (NYSE:JNJ) is a healthcare giant that bought back more than $2.1 billion worth of shares in Q3. In September of last year, the company’s board also authorized repurchases of up to $5 billion worth of the company’s common stock.
For the third quarter, the company’s sales rose 1.9% year over year to $23.8 billion with adjusted operation growth of 8.2%. Adjusted EPS decreased by 1.9% year over year to $2.55.
Given healthcare is a huge market and the company has substantial competitive advantages, Johnson & Johnson (NYSE:JNJ) has earnings growth potential in the long term. With a forward P/E ratio of 16.37, Johnson & Johnson (NYSE:JNJ) shares are pretty fairly priced and could rebound when the macroeconomic climate rebounds in the long term.
Of the 920 hedge funds in our database, 85 hedge funds in our database owned shares of Johnson & Johnson (NYSE:JNJ).
8. S&P Global Inc. (NYSE:SPGI)
Q3 2022 Buybacks (Million): $2,512
Number of Hedge Fund Holders: 90
S&P Global Inc. (NYSE:SPGI) is a financial services giant that offers ratings, benchmarks, analytics, data to capital markets globally. Given the growth in the overall financial market over the long term, S&P Global Inc. (NYSE:SPGI)’s business has also grown over time.
If it maintains its market share, it is likely S&P Global Inc. (NYSE:SPGI) will increase its earnings per share further in the long term. In terms of the future, analysts expect earnings growth despite the macroeconomic headwinds. In terms of the consensus, analysts expect the company to earn $11.13 per share in 2022, $12.54 per share in 2023, and $14.55 per share in 2024.
Given S&P Global Inc. (NYSE:SPGI) bought back over $2.5 billion worth of shares in Q3, the company ranks #8 on our list of 10 Value Stocks with Big Buybacks.
7. Walmart Inc. (NYSE:WMT)
Q3 2022 Buybacks (Million): $2,961
Number of Hedge Fund Holders: 68
Although a forward P/E ratio of 21.57 isn’t particularly cheap, Walmart Inc. (NYSE:WMT) is nevertheless a high quality stock given its substantial scale and competitive advantages of costs relative to other retailers.
In the long term, the company could still be a value stock if uses its competitive advantages to keep increasing EPS and to potentially gain more market share in e-commerce both domestically and overseas.
One way for profitable companies to help increase EPS assuming all else is the same is to buy back shares and Walmart Inc. (NYSE:WMT) has certainly done a lot of that. In Q3 2022, Walmart Inc. (NYSE:WMT) bought back nearly $3 billion worth of its stock and in November of last year, Walmart Inc. (NYSE:WMT)’s board authorized a new $20 billion buyback plan.
6. NVIDIA Corporation (NASDAQ:NVDA)
Q3 2022 Buybacks (Million): $3,779
Number of Hedge Fund Holders: 89
NVIDIA Corporation (NASDAQ:NVDA) is a leading GPU maker with substantial earnings growth potential given GPUs are better at CPUs at certain AI processing tasks. As applications such as ChatGPT and other AI applications increase in popularity, demand for NVIDIA Corporation (NASDAQ:NVDA)’s GPUs can too assuming that the company maintains its innovative edge for its chips and also maintains its market share.
In terms of the consensus, analysts see NVIDIA Corporation (NASDAQ:NVDA) earning $4.33 per share in 2022, $3.27 per share in 2023, $4.33 per share in 2024, and $5.67 per share in 2025.
Like NVIDIA Corporation (NASDAQ:NVDA), Microsoft Corporation (NASDAQ:MSFT), Meta Platforms, Inc. (NASDAQ:META), and Apple Inc. (NASDAQ:AAPL) are stocks arguably trading below their intrinsic value that have bought back substantial stock in the third quarter.
5. Lowe’s Companies, Inc. (NYSE:LOW)
Q3 2022 Buybacks (Million): $3,999
Number of Hedge Fund Holders: 61
Lowe’s Companies, Inc. (NYSE:LOW) is a home improvement retailer that has a big buyback program. In addition to the company buying back nearly $4 billion worth of shares in the third quarter, the company’s board of directors also announced a $15 billion common stock repurchase program with no expiration date as of December 6, 2022.
Although higher interest rates have cooled the housing market, analysts nevertheless expect rising earnings for Lowe’s Companies, Inc. (NYSE:LOW) with consensus EPS estimates of $11.99 per share in 2022, $13.76 per share in 2023, $13.98 per share in 2024, and $15.20 per share in 2025. If its earnings per share grows in the long term and the macroeconomic climate normalizes, Lowe’s Companies, Inc. (NYSE:LOW) could be a value stock given its forward P/E ratio of 14.89.
4. The Procter & Gamble Company (NYSE:PG)
Q3 2022 Buybacks (Million): $4,000
Number of Hedge Fund Holders: 69
The Procter & Gamble Company (NYSE:PG) bought back $4 billion worth of its shares in the third quarter as the company continues to return excess capital back to shareholders through buybacks and dividends. Although inflation has been a headwind, The Procter & Gamble Company (NYSE:PG) has long term growth prospects given its strong brands and potential to gain more market share in the emerging market.
For the fiscal second quarter of 2023, The Procter & Gamble Company (NYSE:PG) reported adjusted earnings per share of $1.59 versus the expected $1.59. Total sales were $20.77 billion, slightly higher than the estimate of $20.73 billion.
3. Microsoft Corporation (NASDAQ:MSFT)
Q3 2022 Buybacks (Million): $5,573
Number of Hedge Fund Holders: 269
Microsoft Corporation (NASDAQ:MSFT) is one of the most widely held elite fund stocks given 269 hedge funds in our database owned shares at the end of the third quarter. Recently, Microsoft Corporation (NASDAQ:MSFT) has been in the news for being set to invest $10 billion in OpenAI, which makes ChatGPT at around a $29 billion valuation. Although the deal term sheet isn’t fully set out, Microsoft could own more of the company and also provide it more cloud services too. If it maintains its market share in the cloud, Microsoft Corporation (NASDAQ:MSFT) has substantial more growth left.
Microsoft Corporation (NASDAQ:MSFT) bought back $5.573 billion worth of shares in the third quarter.
Carillon Tower commented on Microsoft Corporation (NASDAQ:MSFT) in a Q3 2022 investor letter,
Despite reporting very good quarterly results, Microsoft Corporation (NASDAQ:MSFT) underperformed the overall market in August. Technology stocks in general underperformed in August due to fears over slowing global economic growth, potentially leading to cuts in corporate information technology budgets.
2. Meta Platforms, Inc. (NASDAQ:META)
Q3 2022 Buybacks (Million): $7,365
Number of Hedge Fund Holders: 177
Meta Platforms, Inc. (NASDAQ:META) has rallied in 2023 with shares up 8% year to date as the company also has substantial AI potential given its world class employees and its leading position in social media. In terms of buybacks, Meta Platforms, Inc. (NASDAQ:META) is a leader as the company bought back over $7.3 billion worth of stock in Q3.
Rowan Street Capital commented on Meta Platforms, Inc. (NASDAQ:META) in a Q4 2022 investor letter,
Meta Platforms, Inc. (NASDAQ:META) Stock declined -64% in 2022, while their revenues fell just -2% and earnings per share (EPS) declined -37% due to a ramp-up in investment expenses, which we have covered to a great extent in our recent write-up on META). Meta is our second biggest holding in the fund and one that has been a significant detractor from performance in 2022. We published a write-up back in November: Does a $750 billion decline in Meta’s market cap make sense? We strongly encourage you to read it if you have not had a chance to do so. We expect our META holding to be a solid contributor to the fund’s performance over the next several years as well.
1. Apple Inc. (NASDAQ:AAPL)
Q3 2022 Buybacks (Million): $24,736
Number of Hedge Fund Holders: 140
Apple Inc. (NASDAQ:AAPL) is a value stock given the company has a huge number of loyal iPhone buyers which the company can sell other products and services to. In terms of its future, Apple Inc. (NASDAQ:AAPL) has reportedly postponed the launch of augmented reality glasses indefinitely but is still intent on launching a mixed reality headset which could cost around $3,000.
Apple Inc. (NASDAQ:AAPL) ranks #1 on our list of 10 Value Stocks with Big Buybacks given the company bought back $24.7 billion worth of its own shares in Q3.
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Disclosure: None. 10 Value Stocks with Big Buybacks is originally published on Insider Monkey.
