What's going on?
Great minds think alike. Global healthcare giant Johnson & Johnson (J&J), American software titan Oracle, and US aerospace biggie Boeing were all flashing the cash as they flaunted extensive share buyback programs on Tuesday.
What does this mean?
In July, J&J was ordered by a US court to pay $5 billion in damages to a group of women who said its signature talcum powder had given them ovarian cancer. On Friday, a special report from Reuters alleged that J&J knew about the presence of deadly asbestos in its talc for decades without telling anyone. The company denied it, but investors freaked – giving the stock its worst day in 16 years on Friday and wiping $50 billion from the company’s valuation.
Perhaps sensing a bargain – and an opportunity to reassure the market – J&J announced on Tuesday that it’d buy $5 billion of its own stock back from investors. And it wasn’t the only one…
Why should I care?
For markets: When in low-interest-rate Rome…
American companies announced a record $1 trillion of share buybacks this year, thanks both to tasty tax cuts and low interest rates letting companies borrow money cheaply (tweet this). Oracle was able to report a better-than-expected quarterly profit per share this week, helped by buybacks reducing its number of shares. The company’s spent $20 billion repurchasing its stock in the last six months, swinging into debt in order to do so. Boeing, meanwhile, is upping its own buyback game even further.
For you personally: You can benefit from buybacks without selling.
Buybacks usually lead to a company’s share price rising, thanks to the increased demand for its stock – and the indication that it’s confident in its future prospects. Even if the stock doesn’t rise immediately, the reduction in the number of shares outstanding means that those investors who didn’t sell their stakes to the company will have more valuable slices of the pie than before.