The art of buybacks – a boon for shareholders if executed prudently. An indication of financial robustness and copious free cash flow – the lifeblood of any corporation. Astute investors understand the allure of stocks with aggressive share repurchase programs as they have the potential to outshine the market.
The Refined Marvel: Marathon Petroleum (MPC)
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Marathon Petroleum (NYSE:MPC) has been a standout performer with its aggressive buyback strategy. Refiners in North America have been in their heydays, supporting stellar stock performance. An exquisite blend of circumstances has fostered this favorable industry landscape.
Regulatory pressures have led to the closure or repurposing of U.S. refineries. With constrained capacity, S&P Global forecasts a tight market for refined products like jet fuel, gasoline, and diesel, ensuring robust margins for refiners.
In 2023, MPC boasted a cash flow from operations of $13.8 billion. Armed with this financial vigor, the company repurchased stocks worth $11.6 billion, effectively reducing the share float by a commendable 18%. Additionally, a 10% dividend boost sweetened the deal, resulting in an impressive 31% total shareholder return.
The outlook for 2024 suggests that the refined product market will maintain its constraints. A conundrum with no swift resolution as more refineries morph into biofuel processors or distribution hubs.
Marathon Petroleum’s relentless commitment to share buybacks makes it a top contender for value hunters. Having gobbled up over 300 million shares or nearly 45% of the share count since May 2021, repurchasing shares at the current 12 times earnings is poised to propel the stock to new heights.
The Resilient Giant: General Motors (GM)
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General Motors (NYSE:GM) is a diamond in the rough on the S&P 500, actively engaged in substantial stock buybacks.
In 2023, General Motors faced turbulence due to an unprecedented labor union strike, hindering its shareholder return program. Despite these setbacks, the company successfully completed a $7.67 billion buyback.
Post the tentative agreement with the United Auto Workers union, GM promptly unfurled its shareholder return program in November 2023 with an accelerated $10 billion buyback blueprint. These robust repurchase endeavors are expected to persist into 2024.
Operationally, the automaker has hit the ground running in 2024, ramping up its electric vehicle production and clinching substantial victories. The Cadillac LYRIQ, for instance, is smashing monthly records and outselling competitors in the luxury import category.
With GM shares currently trading at bargain basement prices, boasting a forward non-GAAP price-to-earnings ratio of 5 and a trailing EV/EBITDA multiple of 10, any buybacks at these levels would be discerning capital allocation. Management’s proclivity for well-timed repurchases is expected to steer the stock to higher altitudes.
The Construction Titan: Builders FirstSource (BLDR)
Builders FirstSource: A Strong Contender in the Realm of Building Suppliers
Builders FirstSource (NYSE:BLDR) stands tall as the largest distributor of building products in the U.S., catering to single-family and multi-family homebuilders and remodelers. But what sets this company apart in the realm of stock investments?
The Rise of an “Uber Cannibal” in the Building Supplier Market
This building supplier has been a force to be reckoned with in recent times, devouring its own shares through aggressive buybacks. In 2023 alone, the company gobbled up $1.8 billion worth of stock, slashing its share count by a significant 12.2%. Not content with this feast, on February 21, the board upped the ante, expanding the stock buyback program to a colossal $1 billion.
Glimpse into a Bright Future Amidst Improving Housing Market Conditions
With the housing market on an upswing, Builders FirstSource is poised for success. Recent reductions in rate volatility signal good times ahead for the housing sector. The company’s primary revenue stream flows from value-added and specialty products, characterized by beefier gross margins that fuel the creation of sturdy free cash flow reserves.
Building a Strong Foundation: Acquisitions and Expansions Galore
Builders FirstSource has not shied away from growing its empire through strategic acquisitions. Over the years, the company has executed two mammoth acquisitions – ProBuild in 2015 and BMC in 2021 – in addition to 23 smaller tuck-in purchases. This calculated expansion has led to the establishment of a robust distribution network that outshines its competitors, boasting cost efficiencies and operational prowess.
Riding the Wave of U.S. Housing Shortage
Given the substantial housing deficit in the United States, the demand for homebuilding is set to soar. Homebuilders will continue to flock to Builders FirstSource for their supply needs, be it lumber, flooring, roof trusses, or wall panels. The company’s position as a reliable, well-stocked supplier places it in a prime spot to capitalize on this burgeoning trend.
