When Warren Buffett speaks, Wall Street listens — and the “Oracle of Omaha” issued a thorough defense of stock buybacks in his latest annual letter to Berkshire Hathaway’s shareholders. That’s why we’re highlighting club holdings that have repurchased most stocks, including Morgan Stanley (MS), Meta Platforms (META), and Apple (AAPL). Buffett’s reasoning, which mirrors the club’s thinking, is simple: “When the share count goes down, your interest in many of our businesses goes up.” But when done, every little bit helps.” Published February 25 with Berkshire’s fourth-quarter earnings report. In other words, buybacks allow investors to keep a greater percentage of a company’s earnings without requiring them to spend more money on additional shares. Not all buybacks are created equal, as Buffett rightly pointed out in his much-anticipated annual letter. They can be done at inopportune times, such as when a company’s stock price is overpriced. But, in general, buybacks are a beneficial tool at management’s disposal. “When you are told that all buybacks are harmful to shareholders or the country, or exclusively beneficial to the CEO, you are listening to either an economic illiterate or a silver-speaking demagogue (characters that are not mutually exclusive) Are,” wrote Buffett, chairman and CEO of Berkshire Hathaway. Buffett has overseen Berkshire, a multinational holding company since 1965, with myriad subsidiaries spread across most corners of the American economy. He is one of the most successful investors and wealthiest people in the world with a net worth of over $100 billion. For more than a year, the club’s investing mantra has emphasized companies that return cash to shareholders through buybacks and dividends. “It really helps to know what Buffett is focused on, so we’re definitely going to put our portfolios through the Buffett test,” Jim Cramer said on Monday’s “Homestretch.” Last hour of trading. He added: “We like to test ourselves in every way.” So, here’s a full breakdown of buyback activity for the 35 companies from Jim Cramer’s charitable trust in one big chart. Notes on methodology: All numbers courtesy of FactSet. For each company, repurchase activity consists of the firm’s most recent four quarters of reported results. Most Club Holdings have reported for the current earnings season, but we haven’t heard anything yet from Costco (COST) and Salesforce (CRM). Those two companies report on Tuesday and Wednesday, respectively, meaning their four-quarters of buyback activity is down a bit. Market capitalization figures are based on Friday’s closing price. Context Here’s some additional color on the buyback activities of seven major club holdings. Devon Energy (DVN): The oil and gas producer slowed the pace of buybacks in the second half of 2022 after buying Validus Energy for about $1.8 billion. Devon bought back a combined $183 million worth of stock in the third and fourth quarters, compared to $535 million in the first six months of 2022. However, management has said that the company expects to be an “active buyer” of its stock in 2023. Coterra Energy (CTRA): Buybacks are set to be a big focus for the company this year. After spending more than $1.2 billion on stock buybacks in 2022, Cotera’s board last week approved a $2 billion buyback authorization. CEO Tom Jordan said on Cotera’s earnings call Thursday that the company’s capital return priorities will also emphasize buybacks over its variable dividend. Costco: In January, the wholesale retailer’s board reauthorized a $4 billion stock repurchase program that is set to expire in four years. However, we don’t expect them to buy back stock aggressively as history indicates they prefer to use excess cash to issue special dividends. Wells Fargo (WFC): After buying back nearly $6 billion worth of shares in the first quarter of 2022, the bank halted buybacks in the last nine months of the year. However, the management said on the firm’s fourth quarter earnings call that it intends to resume buybacks in the current quarter. Starbucks (SBUX): The coffee chain recently restarted its buyback activity after a nearly two-quarter pause after Howard Schultz took over as interim CEO last spring. Schultz instead increased the company’s investment in its stores and employees. The repurchases in the first quarter of Starbucks’ fiscal 2023 totaled $191.4 million. The company has said it expects to return $20 billion to shareholders by the end of fiscal 2025 through dividends and buybacks. Halliburton (HAL): The oilfield services giant will initiate share repurchases worth $250 million in the fourth quarter of 2022. This was the company’s first major buyback activity since the first quarter of 2020 following a multi-year commitment to reduce debt levels. Halliburton also recently committed to a structure that will see them return at least 50% of free cash flow to shareholders through dividends and buybacks. Salesforce: The enterprise software maker’s first buyback program began in the quarter ended October 31, during which the company repurchased $1.7 billion worth of stock to reduce dilution. It’s part of a $10 billion buyback authorization issued by Salesforce’s board last August. The Bottom Line Buffett’s buyback commentary hits the nail on the head. As the chart makes clear, the vast majority of Club Holdings engages in some level of stock repurchases, which is good news for shareholders. We are big proponents of intelligently executed buybacks, which allow us to capture a greater portion of our companies’ earnings than we would otherwise have absent repurchase activity. (See here for a complete list of stocks in Jim Cramer’s charitable trust.) As a subscriber to CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes to send a trade alert before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he waits 72 hours after the trade alert is issued before executing the trade. The above Investment Club information is subject to our terms and conditions and privacy policy, along with our disclaimer. No fiduciary obligation or duty exists, or is created, by virtue of your receipt of any information provided in connection with Investment Club. No specific results or benefits are guaranteed.
The logo of Meta Platforms in Davos, Switzerland is seen on May 22, 2022.
Arndt Wigman | reuters