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What most investors are missing about buybacks but shouldn’t

Nov 28, 2023

Good morning! 👋

The November rally seems to have paused, at least for a bit as I type.

No matter.

There is always a way into the fight!

I’m starting to see a bid emerge—meaning buying—so it’s entirely possible there could be some green by the time you read this.

Here’s my playbook.

I rarely agree with Jimmy C., but in this case, I do

TV personality Jim Cramer made the observation recently that the market needs a few new “heroes” to create a sustainable rally. (Read)

I agree, but think we’ve already got a few.

One of my faves is up nearly 200% YTD. Another has tacked on 91%, after pulling back from well north of 100%. Still a third is flirting with 100%. Upgrade to Paid

What’s more, the longer that everybody else thinks they don’t exist is a chance for savvy investors to snap up shares before they become even more valuable.

We talk frequently about Apple and Microsoft as just such examples and, in fact, the fantastic Stuart Varney asked me about both yesterday ahead of the opening bell. (Watch)

You know what to do.

I love buybacks—here’s why

Many investors don’t like buybacks because they think management should be “investing” in the company rather than buying back its own shares.

That’s a mistake.

Buybacks increase the true shareholder yield and, in doing so, make your shares considerably more valuable.

Take Kraft Heinz, for instance.

The company just authorized a $3B buyback after what it calls a “milestone” quarter during which management reported a 108.2% jump in free cash flow that topped nearly $2B. (Read)

Makes sense…

The company’s listed yield—meaning what you see on the typical financial website—is 3.44%, but the true shareholder yield yesterday ahead of this announcement was 5.70% (Dividend Yield + Buyback Yield + Debt Paydown = True Shareholder Yield).

That’s just gone up.

Keith’s Quick Tip: True shareholder yield is a more accurate, important way to measure returns than the commonly cited dividend yield. That’s because it combines dividends, buybacks like the one I’m telling you about today, and debt reduction—and, in doing so, allows you to gauge a company’s managerial effectiveness more accurately when compared to other investment alternatives.

There’s hope for piston clankers yet

Virgin Air VIR100 has taken off from Heathrow enroute to NY using 100% sustainable fuel made from a combination of waste fat and Synthetic Aromatic Kerosene made from plant sugars. (Read)

I couldn’t be more thrilled, for two reasons.

First, it’s a trend I’ve been following since 2010 when I discovered that the USN was experimenting with a 50/50 fuel mix derived from traditional petroleum and camelina, a seed.

This is better.

SAF—sustainable aviation fuel—is derived from plants, animal material, municipal waste, and agricultural residue, and pollutes significantly less than traditional dinosaur juice.

What’s more, it can run in traditional engines without requiring adaptation.

I’ve long said that EVs are inevitable—and that’s still true—but I’ve secretly wanted a sustainable dinosaur juice alternative because I love my gasoline-powered vintage cars and motorcycles.

The challenge is supply and, of course, high costs.

It’s too early to pick a winner, but more than 60 airlines have agreed to use at least 10% biofuels by 2030.

Seems to me SAF will hit the bigtime when the Davos Dilettantes decide to make it a “thing” for any private jet flying into the annual confab. Last year, there were 1,040.

Hmmmmm.

Palantir is a finalist in the 25th Platts Global Energy Awards

You don’t hear the words Palantir and energy in the same sentence very often, so this will catch a lot of folks by surprise.

Not me and, hopefully, not you either!

As I have repeatedly noted, there is only 1 Palantir, and it’s a player in dang near every industry, including energy.

That’s why I was super excited to see that Team Karp has been nominated for Energy Transition Technology of the Year as part of the Platts Global Energy Awards. (Read)

Winners will be announced in NY on December 7, 2023.

The stock has been flirting with $20 for a bit, but contrary to what many think, that’s actually a sign of strength. My target is still $50, or more than a double, from here.

Keith’s Quick Tip: Strong markets require buying and selling to work normally. To paraphrase Unka Warren B., the stock market is simply a way to transfer money from the impatient to the patient. Especially when it comes to breakthroughs like Palantir. Apple, Amazon, Microsoft, and a dozen other stocks I can think of off the top of my head experienced similar trading early on. Let that sink in.

Bitcoin pioneers sitting this one out

Reuters is reporting that some Bitcoin pioneers are sticking to the sidelines as big names race to obtain regulatory approval for Bitcoin ETFs. (Read)

Me too.

Demand is so high that experts are projecting the haul could be as much as $3B on the first day ETFs are offered, to $55B over 5 years. What’s more, BlackRock, Fidelity, and a slew of crypto-oriented firms are all in on the action, having filed for approval for spot Bitcoin ETFs.

Reminds me of gold and the introduction of the S&P 500 e-mini.

The new ETFs will be billed as an innovative offering for individual investors, but in reality, Wall Street has simply figured out yet another way to fleece the unsuspecting (which is why they want in on the action so badly).