Most investors like to see companies putting cash to work repurchasing shares, but not all buyback plans are created equal.
That�s the lesson from a report by InsiderScore out today: �While logic suggests that companies buy back shares aggressively when stock prices are low, the opposite, in fact, occurs, as companies as a group have historically accelerated repurchases when stock prices are high and decelerated repurchases when prices are low.�
Armed with this knowledge, InsiderScore looks to identify companies buying back shares at relative lows (within a two-year period) that also have insiders buying stock, to generate actionable, long-term investment ideas.
Turns out tech companies were at the head of the pack in following this pattern, with companies that bought back shares at lows while insiders were also buying� having the greatest price appreciation (and vice versa):� �Technology is one sector that stands out as having a particularly solid disparity of the Low-Priced versus High-Priced returns� In general, Technology is one of the sectors we believe has the highest correlations on both the Low- and High-Priced related events.�
The report looks at 48 tech companies that had both low-priced insider buying and corporate repurchases, and 42 companies that were buying shares at high prices while insiders were selling out. �The first group was up 10.6% in the year after the disclosure; two years out, those stocks had returned 66.4%. By contrast, the second group was down 11.4% in the first year after the disclosure, and had lost 16.4% over two years.
The report details actions at VistaPrint (VPRT) and Zimmer Holdings (ZMH) as representative of the first group, and Cisco (CSCO) and Service Corporation (SCI) for the second.
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