It’s A Bullish Signal When A Company Buys Back Its Own Shares!
Shareholders and investors of two blue-chip companies were treated to good news on Monday July 9, 2007, that carries potentially bullish long-term consequences.
First, Johnson & Johnson announced the repurchase of up to $10 billion of its common stock.Then ConocoPhillips announced the repurchase of a $15 billion share buyback programme, representing an increase of $13 billion above the $2 billion that remained in a previous buyback program.
But why is a buyback programme a positive sign for investors? Why would a repurchase carry such bullish potential? One explanation is in terms of simple supply and demand: Repurchases reduce the supply of a company’s outstanding stock, which should increase the price of those shares that remain.
Another explanation is that companies that repurchase their shares are so confident about their future prospects that they are willing to commit corporate resources to buying them. This is worth paying attention to, since a company’s executives and Board of Directors have access to insider information that the rest of us do...