Ever since its founding in 1875,
Prudential Financial (
has witnessed all kinds of economic cycles. The financial services
have been punished whenever investors fret that a downturn in the
will hurt, yet the company's executives know that Prudential's line
of insurance products, annuities,
services often represent calm ports in a storm. Consider that
Prudential has never earned less than $5 billion in
free cash flow
in each of the past five years, even as the global markets tumbled
in 2008 and 2009.
So you can imagine management's distress in recent weeks as
Prudential's stock got tossed off in the current
rout. Management met with analysts earlier this week and announced
a bold move to calm the waters. With more than $14 billion in gross
cash, Prudential will part with $1 billion in funds to start buying
That buyback helps in two ways. First, it helps investors to stop
fearing that business is in trouble -- companies often pursue
buybacks when business conditions are better than a flagging share
price may indicate. Second, it helps reduce the share count. The
current buyback will reduce the share count by around 4%, though if
shares fall any further, that $1 billion will buy back even more
In recent weeks,
Juniper Networks (Nasdaq: JNPR)
Rockwell Automation (
have all announced fresh buyback programs of at least $1 billion.
It's unusual to see this much activity in the final month of a
quarter. Most companies wait until the next
release date before announcing such plans. At this point, it's safe
to assume we may be looking at a huge wave of buybacks when
second-quarter earnings roll in a month from now.
And that's good news for investors.
Insiders are also buying
We've also seen a noticeable
in insider buying over the past month. Here again, such moves
typically take place once
is underway, as the
for insider transactions is temporarily lifted. The insiders buying
now are among the minority not currently subject to blackout
Consider this stat: last week, we saw 334 open market
purchases against 362 open-market sales, according to
insiderinsights.com. The sells-to-buys ratio is typically 4-to-1 or
5-to-1 and is rarely close to parity as it is now.
The key takeaway: look for a huge surge of insider buying in July
and August, assuming the market remains in a funk. If you own a
stock that is being bolstered by insiders, then you should take
comfort that these individuals are confident enough to make big
bets on their own stock during the current shaky environment.
Companies with major recent insider buying include:
. Insiders have snapped up an eye-popping $400 million worth of
stock in the past month, with much of that buying coming from
company director Ralph Whitworth. He runs the investment firm
Relational Investors, and it's clear he obviously thinks this stock
is quite undervalued.
Vocus (Nasdaq: VOCS)
. This firm, which offers a suite of products that helps clients
use the Web more effectively as a marketing tool, has seen more
than $2 million worth of buying recently. Shares got crushed in
late February after the company spent $169 million to acquire
iContact, which is a big player in e-mail marketing. Analysts
thought Vocus overpaid for iContact, but insiders are now signaling
that shares have been punished too much for that sin.
Tempur-Pedic (Nasdaq: TPX)
. This mattress maker has seen its stock get crushed from $88 to
$24 in just two months. In response, management announced a $200
million stock buyback and company officers and directors have been
buying shares on the open market. Most investors are steering clear
anyway to see how the current mattress industry shakeout plays out,
but value investors may start to give this stock a closer look:
Shares now trade for less than 10 times sharply reduced 2012
Risks to Consider:
Buybacks and insider buying are great value signals but won't
always prevent these stocks from falling even further in a tough
market. Of the two moves, studies have shown that buyback
announcements tend to provide more near-term downside protection in
slumping stock markets.
Action to Take -->
Buybacks are especially intriguing in this market. Falling stock
pricesmean that share counts can be reduced at an even faster pace.
You should examine each of the stocks in your portfolio and see if
there's any news about a buyback or insider buying. That could be a
positive sign that shares are at or near a level of support.
-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.