Finding the cannibals

[rukawa]

In part of Monish Pabrai's presentation he talks about investing in cannibals (companies that buyback shares rapidly). I was thinking about how these companies could be systematically searched for. The simplest way is just to look for companies with rapidly decreasing shares outstanding. A more sophisticated measure would also incorporate the fact that its better to buyback when share prices are low and perhaps even issue shares when they are high. I guess I am trying to identify the Teledynes of the world.

 

Has anybody tried this? Any ideas on where I can find historical shares outstanding data?

[no_free_lunch]

Look at this link.  The balance sheet section has a column with shares outstanding.  I am curious to see what you find.

 

http://investing.money.msn.com/investments/financial-statements?symbol=ibm

[compoundinglife]

I sometimes look at this screen, but its fairly short term, comparing current MRQ, PQ, TTM.

 

I don't do this in an automated fashion but I really like ValueLine sheets for the ability to look at shares outstanding over the years very easily.

[educatedidiot]

There is a "Cannibals" screen here:

http://www.rocketfinancial.com/ScreenResults.aspx?id=26

 

It looks for companies that reduced their share count by at least 3% in each of the last 4 years.  I was surprised to see that only 75 companies made the cut right now.  There are some obvious names like AZO and ITW, and others that I wouldn't have suspected.

 

You can also use the screener there to generate a list using slightly different criteria, although the 3% threshold for 4 years seems to strike a good balance between consistency and appetite if you're looking for "cannibals."

[educatedidiot]

I noticed a small cap company on this list that reduced their share count by an incredible 6%+ in each of the last 4 years, while growing the business by around 30% over the same period.

 

It's a staffing company called Kforce: http://www.rocketfinancial.com/Overview.aspx?fID=2487&pw=82029

 

Is anyone familiar with this company?  Last year was a down year, but it looks like the business has started to rebound again this year.

[Travis Wiedower]

On one of Patrick O'Shaughnessy's podcast he mentioned that his fund did a back test on companies that sporadically buyback stock and that group has significantly outperformed over the years. I think I remember his father, James, talking about this same concept in one of his books, but I'm not 100% sure on that.

 

Anyway, my point is that your inclination that CEOs who opportunistically buyback stock makes for good hunting ground has some evidence to back it up. I have no idea how to replicate a screen like that though.

[LC]

You could use two screens: one which measures overall share count reduction over ten years (or whatever timeframe). then a second screen like the one provided, which screens for regular buybacks (X% per year). simply remove screen 2 results from screen 1 results and you're left with the "bulk" repurchasers.

[JayGatsby]

I have a Google alert for "share buyback". Don't think I've bought anything it's turned up, but it can be interesting. I'm not as diligent about reviewing all the names it turns up as I should be.

 

Intel (INTC) I think is an interesting cannibal. Never really gets discussed as anything other than the company that AMD is going to rise up and destroy tomorrow, but they've repurchased something like half their shares over the years and are repurchasing something like 10% this year.

 

[Jurgis]

I'd guess the difficulty is not finding the cannibals, but rather distinguishing the value building ones from value destroying ones... in foresight and not hindsight.

[Liberty]

On one of Patrick O'Shaughnessy's podcast he mentioned that his fund did a back test on companies that sporadically buyback stock and that group has significantly outperformed over the years. I think I remember his father, James, talking about this same concept in one of his books, but I'm not 100% sure on that.

 

Anyway, my point is that your inclination that CEOs who opportunistically buyback stock makes for good hunting ground has some evidence to back it up. I have no idea how to replicate a screen like that though.

 

Ideally, it might be possible to look at share count reductions over long periods and overlay valuations over that period to give more points to buybacks done at low valuations/high FCF yields and give less credit to buybacks done at high valuations. Of course you'd have to use relative valuations for each companies, since a really good business might always have a higher multiple than a crappy business, but buybacks done in the low end of that range might still be better...

[Gregmal]

TPL.

[DooDiligence]

I'd guess the difficulty is not finding the cannibals, but rather distinguishing the value building ones from value destroying ones... in foresight and not hindsight.

 

Agreed, look at how much SLB & CLB & others paid for stepped up buybacks between 2013 & 2015 (shoulda saved the $ 4 now...)