Page 25 - Aruba Today

BUSINESS A25
Wednesday 10 February

Companies lose billions buying back their own stock

BERNARD CONDON This combination of file photos shows logos for IBM, Macy’s, companies in the S&P 500 GAINERS HELP, SORT OF
AP Business Writer Chevron and Starwood Hotels and Resorts group’s W Hotel Holly- index, leaving out the index When the companies that
NEW YORK (AP) — If you wood. Big companies have lost billions buying their own shares. members that split off parts have profited from buy-
think your stocks are do- Nearly half the companies in the Standard and Poor’s 500 index of their businesses during backs over the last three
ing poorly, check out the paid more for their shares in the past three years than they are the period. Among the years are included with
performance of some of worth, according to analysis by The Associated Press. findings: the losers, the paper losses
the most sophisticated in- narrow to $11 billion. To-
vestors, the ones with more (AP Photo) $100 MILLION CLUB tal spent on buybacks by
knowledge about what’s Nearly a third of the com- all companies: $1.43 tril-
going on inside business- buy more and more shares. As the price of oil plunged, panies studied, 153 in all, lion, more than the annual
es than anyone else: Com- That those shares have now driller Chevron racked up lost $100 million or more economic output of all but
panies that buy their own plunged in value is some- $2.8 billion in paper losses, on their purchases in three 12 of 193 countries in the
shares. thing Colas calls a “great or 28 percent. years. world, according to the
The companies losing mon- irony” of the bull market. “The company doing the World Bank.
ey on these bets are down Among the companies most buybacks is often not NOT JUST ABOUT OIL Stocks may bounce back,
a collective $126 billion with the biggest paper loss- investing enough in its busi- Four of the top 10 biggest of course, turning losses
over the past three years, es are struggling ones that ness,” says Fortuna Advi- dollar losers are energy into gains. But the history of
a decline of 15 percent. bought after their stock sor CEO Gregory Milano, companies. But big losses buybacks isn’t encourag-
Many corporations would fell, only to watch prices a consultant who has writ- are hitting a variety of com- ing.
have been better off in- drop even more. Macy’s, ten several studies criticiz- panies, including insurers Companies often buy at
vesting that cash in an in- the beleaguered retailer, is ing the purchases. He says and banks, retailers, tech- the wrong time, experts
dex fund instead of their down $1.5 billion on its pur- most buybacks are “finan- nology companies, airlines say, because it’s only af-
own stock. The overall mar- chases, a 26 percent loss. cial engineering” and a and entertainment giants. ter several years into an
ket rose 39 percent over American Express has lost waste of money. economic recovery that
the same period. And it’s $4.1 billion, or 34 percent. The study looked at 476 BIGGEST WINNER, BIGGEST they have enough cash to
not just a few big corpo- LOSER feel comfortable spend-
rate losers accounting for MasterCard has the big- ing big on buybacks. That
all the pain. The group in- gest paper gains from buy- is also when companies
cludes 229 companies in backs: $7.9 billion. IBM has have made all the obvi-
the Standard and Poor’s the biggest paper losses: ous moves to improve
500 index, nearly half of $9.8 billion. IBM says it isn’t their business — slashing
the companies in the study neglecting long-term in- costs, using technology to
prepared by FactSet for vestments and notes that become more efficient,
The Associated Press. the money it spent on R&D, expanding abroad — and
When a company shells big projects and acquisi- are not sure what to do
out money to buy its own tions last year was triple next to keep their stocks
shares, Wall Street usually what it spent buying its rising.q
cheers. The move makes stock.
the company’s profit per
share look better, and
many think buybacks have
played a key role pushing
stocks higher in the seven-
year bull market.
But buybacks can also
sap companies of cash
that they could be using
to grow for the future, no
matter if the price of those
shares rises or falls.
And the recent losses
highlight another criticism:
Companies may be good
at finding oil or selling
bathroom trinkets, but they
aren’t always smart stock
investors. Some corpora-
tions bought ever more of
their own shares even as
prices tripled from finan-
cial-crisis lows and several
measures showed the mar-
ket was overvalued.
“Whenever you see a buy-
back, the company always
says, ‘We think our stock is
cheap,’” says Nicholas Co-
las, chief market strategist
at brokerage ConvergEx
Group.
They are sometimes so
confident that they take
out enormous loans just to