Buyers return as stocks get discounted

NEW YORK — The biggest buyers of stocks are coming back.

More than any other group, companies themselves are the largest purchasers of their own shares. But they were notably absent from the market the last few weeks, just as stock prices were tumbling on worries about global trade and rising interest rates.

Businesses were holding back on repurchases the last few weeks because they were in one of their “blackout” periods for buybacks, a regular occurrence leading up to the release of their quarterly results. Now that most companies in the S&P 500 index have given their third-quarter reports, blackouts are lifting, and analysts across Wall Street say the return of those buyers should help support the market.

The S&P 500 climbed 2.7 percent over Tuesday and Wednesday, after losing nearly 10 percent in the four prior weeks.

“There’s been a quiet period on buybacks, and the indication is that next month we’re going to have four times as many buybacks as we had” in October, said Marina Severinovsky, investment strategist at Schroders.

The dollar amounts are huge, a result of the record profits that companies have been producing thanks in part to lower tax bills. Corporations in the S&P 500 index may buy back up to $1 trillion of their own stock this year, some analysts estimate. That’s enough to give every American $3,000. Last year, S&P 500 companies repurchased $519.4 billion of their stock, according to S&P Dow Jones Indices.

The recent drop in stock prices leaves those shares more attractively valued, which gives even more incentive for companies looking to repurchase their own stock. Analysts at Keefe, Bruyette & Woods say they expect Bank of America, Citigroup and Wells Fargo to be among the most aggressive big banks in repurchasing their shares, for example. Bank of America’s stock trades at 9.7 times its expected earnings per share over the coming year, cheaper than the price-earnings ratio of 11.1 that it had late last month.

Stock repurchases help investors and companies in a couple of ways. Not only do they provide support for stock prices by adding more buyers to the market, they can also goose one of the most important profit measures that shareholders judge CEOs by: the company’s earnings per share.

When a company makes $100 in profit, each investor checks how much of that their shares can lay claim to. If there are 100 shares, the company earned $1 for each. But if the company takes 50 shares off the market by buying them back, suddenly $100 in profit becomes $2 for each share.