With the stock market getting pummeled investors have run for cover. Panicking after losing significant chunks of their savings, investors are looking for any reason to jump back into the stock market. Unfortunately instead of rewarding investors, companies are trying to fool them. As if we haven’t seen enough corporate irresponsibility, the new trend of corporate stock buybacks artificially increases EPS, thus fooling investors into thinking the company is actually growing.
It’s funny that this trend towards buybacks has taken hold as Barack Obama has surged in the polls. Much like Obama’s economic policy, share buybacks are cosmetic solutions but often nothing concrete to reward investors. Sort of like running a campaign on hope and change!
Enough trickery, investors have suffered enough. It’s time to start rewarding investors. How? Remember that old time word they used to use, ‘Dividend.’
I know that share buybacks are ‘tax efficient’ as well as they fatten EPS numbers, but how about doing something radical for investors? Something like paying a dividend, or investing in growing the company. Doesn’t a stock buyback just mean that the company has nothing better to do with their money? Give some of your profits back to shareholders. Hey, there is an idea!
For a great analysis of the pros and cons of buybacks, check out economist Stefan Karlsson’s blog.
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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
Written by: Aaron Katsman | July 30, 2008
As we finally get to see some decent earnings coming out of Israeli companies that trade in the US, it seems that these companies have all read the same ” Prop up your stock” book. Can you say stock buyback? Companies like Commtouch (CTCH), Alvarion (ALVR), AudiCodes (AUDC) are among Israeli companies that posted good earnings, raised guidance and announced share buybacks.
I know that share buybacks are ‘tax efficient’ as well as they fatten EPS numbers, but how about doing something radical for investors? Something like paying a dividend, or investing in growing the company. Doesn’t a stock buyback just mean that the company has nothing better to do with their money? Give some of your profits back to shareholders. Hey, there is an idea! For a great analysis of the pros and cons of buybacks, check out economist Stefan Karlsson’s blog.
All 3 aforementioned stocks have gotten nailed this year, so why not reward investors by paying a dividend. After all if we are only worried about being tax efficient, then just sell all your losing stock and take the tax loss. BTW nice article over at Bizzywomen.com, explaining tax losses.
After all I guess after the many Israeli companies that have provided lousy earnings results, we should just be happy that these companies beat estimates. That’s reward enough for investors.
Aaron Katsman, IsraelNewsletter.com
Disclosure: Author’s fund has a position in AUDC,ALVR. He has no position in any other stock mentioned as of 7/30/08.
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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
