Are stock buybacks losing their magic touch?

Pedestrians walk past the IBM building in New York.
Scott Mlyn | CNBC

One of the strangest reactions this week was the lack of movement in IBM shares after the company announced a $4 billion stock buyback.

IBM shares traded marginally lower after the midday Tuesday announcement and then really took it on the chin after the company disclosed an SEC investigation into its revenue recognition process a few hours later.

Investors are concerned that stock buybacks, which have been the biggest source of buying power for this six-year bull market, are losing their ability to move share prices higher.

IBM's desperate-looking buyback amid an investigation may have marked a change in the way investors perceive stock repurchases. They may no longer see this as a good way to use excess cash but rather as a sign that a company may be masking a lack of growth opportunities in a lackluster global economy.

"While buybacks can do wonders for short-term returns, they do almost nothing for the long-term health of companies or the economy. Buybacks come at the expense of research and development and capex," David Nelson, Belpointe's chief strategist, wrote in an email.

At this stage, Nelson added, companies need to "spend more time and money developing new products and services. That's the key to long term success. Financial engineering just postpones the inevitable. One look at the poster child of buybacks IBM says it all. They've been averaging about $13 billion a year in buybacks to hold up earnings while revenues have declined for 14 straight quarters."

IBM, down 12 percent in 2015, isn't alone in its buyback futility. Six out of the 10 companies with the largest stock repurchase programs are down this year, some significantly.

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