Companies like DirecTV and McDonald’s Corp. that frequently buy back their own shares are recommended holdings for a “balanced global portfolio,” Citigroup Inc.’s Robert Buckland said in a note dated yesterday.
Buybacks provide an opportunity to benefit when there is limited equity demand, and low interest rates and cheap valuations combine to make buybacks even more profitable, Buckland wrote. The note listed 40 stocks that Citigroup analysts rated “hold” or “buy” and have positive earnings momentum, including International Business Machines Corp. and Procter & Gamble Co.
“It makes sense to incorporate contracting-supply equities into a balanced global portfolio,” Buckland wrote. “IBM’s share count has almost halved since the late 1990s. Even gold doesn’t see supply dynamics as attractive as that.”
Standard & Poor’s 500 Index companies authorized 38 percent more buybacks in the first quarter of 2011 than a year earlier, data compiled by Birinyi Associates Inc. Corporations are facing “ripe” conditions for buying back shares, pursuing mergers and acquisitions and increasing debt after hoarding cash since 2009, Barclays Capital’s Jeffrey Meli said on July 22. Companies amassed a record $1.9 trillion in cash after the 2008 credit crisis.
Buyback-Prone Companies Recommended by Citigroup (stock tickers in parentheses): Comcast Corp. (CMCSA US) AutoZone Inc. (AZO US) WellPoint Inc. (WLP US) DirecTV (DTV US) Daito Trust Construction Co. Ltd. (1878 JP) Symantec Corp. (SYMC US) AmerisourceBergen Corp. (ABC US) Aetna Inc. (AET US) Koninklijke (Royal) KPN NV (KPN NA) Nextgen Group Plc (NGG LN) Time Warner Inc. (TWX US) Swedish Match AB (SWMA SS) Laboratory Corporation of America Holdings (LH US) Hewlett- Packard Co. (HPQ US) Amgen Inc. (AMGN US) International Business Machines Corp. (IBM US) Sherwin-Williams Co. (SHW US) Fiserv Inc. (FISV US) W.W. Grainger Inc. (GWW US) Omnicom Group Inc. (OMC US) Microsoft Corp. (MSFT US) Lockheed Martin Corp. (LMT US) Waters Corp. (WAT US) Target Corp. (TGT US) Raytheon Co. (RTN US) UnitedHealth Group Inc. (UNH US) Dell Inc. (DELL US) C. R. Bard Inc. (BCR US) Ball Corp. (BLL US) Ross Stores Inc. (ROST US) Procter & Gamble Co (PG US) BMC Software Inc. (BMC US) Safeway Inc. (SWY US) McKesson Corp. (MCK US) McDonald’s Corp. (MCD US) Canadian National Railway Co. (CNR CN) BASF SE (BAS GY) Novo Nordisk A/S (NOVOB DC) AstraZeneca Plc (AZN LN) NTT DoCoMo (9437 JP)