How to Get Your Share of $800 Billion in Buybacks

Apple just announced the largest stock buyback in the history of the world.

During its May 1 earnings call, Apple said it would buy back $100 billion worth of shares. That’s about 12% of the company.

Not surprisingly, shares of the iPhone maker reached an all-time high.

In October 2017, PBRG’s very own Teeka Tiwari told me that President Trump’s tax cuts would boost the fortunes of companies like Apple… and therefore, that of their shareholders.

Here’s what Teeka said then:

Apple was one of the biggest benefiters of the last tax repatriation holiday (in 2004).

Today, Apple has $230 billion in foreign cash. Based on history, we expect Apple to repatriate 90% of that cash, or $207 billion…

And if it goes through, shareholders will be the No. 1 beneficiary.

Since Teeka added Apple to The Palm Beach Letter portfolio in August 2017, it’s up nearly 22%. (Apple is above his buy-up-to price, so we don’t recommend buying it now.)

Here’s the thing…

Apple isn’t the only company buying back shares. So far in 2018, companies have announced over $400 billion in new buybacks. Some analysts predict there will be over $800 billion in buybacks this year.

This is giving us a historic opportunity to add some quality companies to our portfolios.

Before I get to the companies, let me tell you what’s going on.

Tax Cuts = More Money for Shareholders

These large buybacks aren’t happening just because companies are doing well. They’re getting a boost from the tax cuts President Trump signed into law last year.

As Teeka told Palm Beach Letter subscribers last year, the most important line in the tax law was this: “One-time tax on trillions of dollars held overseas.”

Here’s why that line is important…

In January, I told you that President Trump’s new law would drop the corporate tax rate from 35% to 21%.

So any company that had an effective tax rate of 35% in 2017 would be able to hang onto an additional 14% of its profits in 2018.

Any time a company keeps more of its money, that’s good thing for stock prices.

But the tax law had another benefit for corporations… They can “repatriate” money held offshore for a one-time, low rate of 15.5%.

Teeka predicted that corporations would repatriate up to $2.6 trillion in overseas cash… and return that extra cash to shareholders via increased dividends and buybacks.

We’re already seeing that with Apple.

Investors loved hearing that Apple was buying back $100 billion worth of its shares. That means on any pullback, there’s $100 billion sitting on the sidelines.

But as I said, Apple isn’t the only “tax refund” company buying back bucketloads of stock.

Where to Find “Tax Refund” Companies

Companies have announced almost a half-trillion dollars’ worth of buybacks in 2018.

Ironically, to discredit the tax cuts, Senate Democrats have put together a list of companies that will buy back the most shares. They call it the “GOP Tax Scam.”

(Democrats believe Trump’s tax cuts benefited wealthy shareholders over the middle class. One senator even wrote a bill to prohibit companies from buying back shares, which is ridiculous.)

Nevertheless, we steer clear of political fights in the Daily. Our goal is to find you money-making opportunities. And in this case, the Democrats have made our job easier by compiling a list of companies buying back stock.

There are a few companies I like on the list, including former Elite 25 company AbbVie, as well as Facebook, Google, and Visa.

For the complete list, click here.

Now, we haven’t researched every company on this list. And just because a company buys back shares, doesn’t make it a good investment.

Sometimes the timing just isn’t right. (For instance, we had to sell two of our “tax refund” stocks for small losses.)

So make sure you do your due diligence.

But when a company buys back its shares, it’s a good thing. In fact, I’d use this list as a starting point for my investment research.

Regards,

Nick Rokke, CFA
Analyst, The Palm Beach Daily

P.S. If you’re a Palm Beach Letter subscriber, you can read our tax refund special report right here.

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