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Share Buybacks Called Bullish Value Sign

Friday, 18 May 2007 | 10:20 AM ET

Share buybacks are seen driving the market rally. But is the record buyback level really a good thing? Jerry Castellini thinks so. The president and CIO of CastleArk Management explained his optimism to "Squawk on the Street" viewers.

Stock Buybacks
Analysis of what the increasing number of stock buybacks says about the market, with Jerry Castellini, CastleArk Management president & CIO and CNBC's Mark Haines

Castellini told CNBC's Mark Haines that massive stock buybacks "give investors pause," because they always occur in the second half of a cycle, e.g., the later 1980s and 1990s -- and investors become convinced that the companies in question "have no good ideas" left.

But the CIO said that it's a different environment now, with more companies enacting buybacks than ever before -- and not just the corporate titans, but "all the way down to small companies." He says the trend is evidence that the value of stocks today is "generally cheaper than it's ever been in a second-half economic stock-market environment."

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Castellini said that in previous times, firms "like autos, or [energy company] TXU" would never be buying themselves."

He said that the only realistic worries might be "problems" with the U.S. dollar or China's economy. But he remains bullish on the buyback trend, citing "many powerful supports" buttressing the U.S. stock market -- and "no more than 5% to 10% downside."

Top five share buybacks over the past two years:

-Exxon Mobil: $47.8 billion
-Microsoft: $27.3 billion
-Time Warner: $20 billion
-General Electric: $17+ billion
-Goldman Sachs: $15 billion

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