These stocks should outperform as buybacks pick back up, Bank of America says

Published Thu, Feb 10 202210:15 AM ESTUpdated Thu, Feb 10 202212:33 PM EST

A flood of company buybacks won't necessarily save the S & P 500 from its disappointing 2022 performance, but certain share repurchase programs can boost some beaten-down names, according to Bank of America. The major averages started 2022 on a negative foot as companies juggle a Federal Reserve pivot, rising interest rates and 40-year-high inflation. The S & P 500 is down about 4%, and the technology-focused Nasdaq Composite is off by more than 8% this year. The Dow Jones Industrial Average is down about 1.6% in 2022. "Some expect this earnings season's market volatility to be quelled by the resumption of buybacks after company's blackout periods end. But the relationship between S & P 500 buybacks and index performance since 1986 is ... minimal," said Savita Subramanian, equity and quant strategist at Bank of America. Stock buybacks have been a common practice over the last several years, with companies looking to return value to shareholders in ways other than paying dividends. Buybacks reduce the outstanding shares of a company. In turn, they can push a stock's per-share price higher, because some common metrics used to evaluate a stock price are spread across fewer shares, making the stock look more attractive. While an increase in buybacks doesn't correlate to overall S & P 500 performance, single stocks can get a lift, according to Bank of America. "Companies that repurchase shares at inexpensive valuations tend to outperform," Subramanian said. "So if buybacks pick up, and perhaps they should since close to half of stocks in the S & P 500 trade at 10+% discount to 2021 levels, history suggests that buybacks at low multiples are more likely to outperform," she said. Bank of America screened for companies that are aggressively buying back stock, as their outstanding shares have diminished since a year ago. DuPont de Nemours ' shares outstanding are down 29% year over year as the company continues its share repurchase program. HP Inc . and Charter Communications have seen their shares outstanding shrink 13% and 11%, respectively in the past 12 months. Nucor , Capital One Financial , Synchrony Financial , Autozone and Oracle have repurchased enough stock for their shares outstanding to decline 10% in the past year. Bank of New York Mellon and Seagate Technologies have seen there shares outstanding decline 9% and 8%, respectively, as the firms continue to buy back stock. — with reporting from CNBC's Michael Bloom.

A sign is posted in front of Oracle headquarters on December 09, 2021 in Redwood Shores, California.

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