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Cramer: CEOs sick & tired of the market undervaluing their stocks

Jim Cramer loves it when CEOs running a company put their money where their mouth is.

Cramer has noticed the pattern that lately, many companies have announced large buybacks. Usually a buyback can be a signal that a company is attempting to shrink the number of shares available in order to create more attractive earnings per share growth — but Cramer thinks it is something else.

"To me, these buybacks make a statement. They're how a CEO lets you know that he is sick and tired of the market undervaluing his stock, and he's not going to take it anymore," the "Mad Money" host said.

Nothing screams louder that a stock is undervalued like a giant repurchase program.





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"To me, these buybacks make a statement." -Jim Cramer

General Mills CEO Ken Powell has taken the share count of his company down nearly 8 percent since 2013.

Likewise, homebuilder Toll Brothers has reduced shares down to 173 million from 184 million in the past year.

Even Best Buy, which rose more than 19 percent after announcing a strong quarter on Tuesday, has taken its share count to 320 million from 406 million since 2011.

"You'd better believe that a consistent buyback helped contribute to that amazing number," Cramer said.

So, while many companies may be trying to engineer earnings per share growth, sometimes it is simply a message that the market is judging a stock wrong.

Cramer believes these buybacks show that many CEOs believe they aren't getting the credit for the terrific execution and everything they have accomplished. Thus, they are buying back the company stock because they think it is too cheap and deserves to go higher.

The Best Buy conference call indicated to Cramer that the company feels this way. It has reinvented itself many times from a record store, to a cellphone store, to a television store, to an appliance store with home theaters. Yet, it hasn't gotten an ounce of credit, Cramer said.

The same goes for Toll Brothers. Cramer was sure that Chairman Bob Toll was sick of watching his stock languish, so he went to town and bought back 2 percent of the company's shares in the past quarter.

Even General Mills is bursting with areas of growth and a cash flow that make most businesses envious. While the stock is up 23 percent so far for the year, Cramer doesn't think that's enough.

"I have to say that Ken Powell and his team simply aren't getting enough credit for reinventing this company on the fly as much more of a natural and organic play," Cramer said.

All three companies have produced phenomenal results, but until recently haven't gotten the credit they deserve. And that is why Cramer says management teams took matters into their own hands to buy back stock.


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