Apple Inc., Analog Devices Inc. and Garmin Ltd. are among the U.S. companies with the most firepower to extend the biggest surge in stock buybacks since the 1980s.
Apple has the highest percentage of cash to assets among 47 likely buyback candidates in the Standard & Poor’s 500 Index, followed by circuit maker Analog Devices, according to data compiled by Bloomberg. Garmin, a maker of navigation devices, led among consumer-discretionary companies on that basis.
Buyback announcements reached $208 billion in the first three months of the year, the busiest first quarter since at least 1985, according to Birinyi Associates Inc., the Westport, Connecticut-based research firm founded by Laszlo Birinyi. While Europe’s fiscal crisis and China’s slowing economy are curbing profit growth, the increase in buybacks signals that U.S. companies wary of expanding operations or adding jobs are still seeing value in their own shares.
“Companies are flush with cash and buyback authorizations are taking off,” Rob Leiphart, an analyst at Birinyi, said in a telephone interview. “While the economy is getting better, it is getting better very slowly. We are still seeing layoffs.”
The surge in buybacks is occurring even with the S&P 500 trading at a record level, suggesting that many companies still see further gains ahead for their stocks. And while the purchases may divert money that could otherwise be used to expand their businesses, companies that buy back stock may aid investors by boosting earnings per share.
In addition to examining cash and marketable securities as a percentage of total assets, the data compiled by Bloomberg focused on S&P 500 companies with price-to-earnings ratios lower than the market-cap weighted average for their sectors.
The companies also had gross margins and returns on common equity greater than zero, signaling profitability. They also bought less than 5% of their shares on average over three years, showing there’s room to start or expand buyback programs.
Financial companies, health-care providers and utilities that may have regulatory constraints on their cash were excluded, as was MetroPCS Communications Inc., which has agreed to be acquired by Deutsche Telekom AG.
Information technology companies accounted for 9 of the top 10 in cash to assets, in part reflecting their need to fund acquisitions and research. Increased cash flow now may give them the opportunity to pay for those needs and still do buybacks.