The Buffett test: This one chart shows how much every Club holding spends on stock buybacks
by by When Warren Buffett speaks, Wall Street listens — and the “Oracle of Omaha” issued a full-throated defense of stock buybacks in his latest annual letter to Berkshire Hathaway shareholders. That’s why we’re shining a light on the Club holdings that repurchase the most stock, including Morgan Stanley (MS), Meta Platforms (META) and Apple (AAPL). Buffett’s argument, which mirrors the Club’s thinking, is simple: “When the share count goes down, your interest in our many businesses goes up. Every small bit helps if repurchases are made at value-accretive prices,” Buffett wrote in the letter , published Feb. 25, alongside Berkshire’s fourth-quarter earnings report. In other words, buybacks allow investors to own a greater percentage of a company’s earnings without needing to spend more money on additional shares. Not all repurchases are created equal, as Buffett rightfully pointed out in his much-anticipated annual letter. They can be done at irresponsible times, such as when a company’s stock price is overvalued. But, in general, buybacks are a beneficial tool at management’s disposable. “When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive),” wrote Buffett, Berkshire Hathaway’s chairman and CEO. Buffett has overseen Berkshire, a multinational holding company whose myriad subsidiaries span most corners of the U.S. economy, since 1965. He is one of the most successful investors and wealthiest in the world, with a net worth over $100 billion. For more than a year, the Club’s investment mantra has emphasized companies that return cash to shareholders via buybacks and dividends. “It really helps to know that’s what Buffett is focused on, so we’re of course going to put our portfolio through the Buffett test,” Jim Cramer said on Monday’s “Homestretch ,” our daily afternoon audio feature to get members ready for the last hour of trading. He added: “We like to test ours in every single way.” So, here’s a full breakdown of buyback activity for the 35 companies in Jim Cramer’s Charitable Trust in one big chart that’s sortable and searchable. Context Here’s some additional color on the buyback activities of seven key Club holdings. Devon Energy (DVN): The oil-and-gas producer slowed down its pace of buybacks in the second half of 2022 after buying Validus Energy for roughly $1.8 billion. Devon bought back just $183 million worth of stock in the third and fourth quarters combined, compared with $535 million in the first six months of 2022. However, management has said the company expects to be “active buyers” of its stock in 2023 . Coterra Energy (CTRA): Repurchases are set to be a bigger focus for the company this year . After spending more than $1.2 billion on stock buybacks in 2022, Coterra’s board approved a $2 billion buyback authorization last week. The company’s capital return priorities also will emphasize buybacks over its variable dividend, CEO Tom Jorden said on Coterra’s earnings call Thursday. Costco: In January, the wholesale retailer’s board reauthorized a $4 billion stock repurchase program , which is set to expire in four years. However, we don’t expect them to aggressively buy back stock because history indicates they prefer to use excess cash to issue special dividends. Wells Fargo (WFC): After buying back roughly $6 billion worth of shares in the first quarter of 2022 , the bank stopped doing buybacks in the final nine months of the year. However, management said on the firm’s fourth-quarter earnings call it intended to resume repurchases in the current quarter . Starbucks (SBUX): The coffee chain recently restarted its buyback activity, following a roughly two-quarter pause after Howard Schultz took over as interim CEO last spring. Schultz instead upped the company’s investment in its stores and employees. Repurchases returned in Starbucks’ fiscal 2023 first quarter totaled $191.4 million. The company has said it expects to return $20 billion to shareholders by the end of fiscal 2025 through dividends and buybacks. Haliburton (HAL): The oilfield services giant resumed share repurchases in the fourth quarter of 2022 , buying up $250 million worth of stock. It was the company’s first major buyback activity since the first quarter of 2020, following a multiyear commitment to reduce debt levels. Haliburton also recently committed to a framework that will see them return at least 50% of free cash flow to shareholders through dividends and buybacks. Salesforce: The enterprise software maker’s first-ever buyback program commenced in the quarter ended Oct. 31, during which the company repurchased $1.7 billion worth of stock to minimize dilution. It’s part of a $10 billion buyback authorization issued by Salesforce’s board last August. Bottom line Buffett’s buyback commentary hits the nail on the head. As the chart makes clear, the vast majority of Club holdings engage in some level of stock repurchases, which is good news for shareholders. We’re big proponents of wisely-executed buybacks, allowing us to have a bigger piece of our companies’ earnings than we otherwise would absent the repurchase activity. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
The logo of Meta Platforms is seen in Davos, Switzerland, May 22, 2022.
Arnd Wiegmann | Reuters