In the last roundup which discussed Microsoft's approach towards debt, a sort of speculation was given with regard to Microsoft's latest round of buybacks. It came from Bloomberg, based on analysis by UBS. We believe that Microsoft's new buybacks (stock repurchase program) have just begun quietly. The stock surged, initiated by what Microsoft had to say, and then came these reports, which are only good news if you are an existing investor.
Bloomberg published a story today which said that the company is about to unveil a plan to buy back as much as $20 billion of its stock. The notion was attributed to UBS analyst Heather Bellini, who actually floated the idea in a July 25 analyst report. And she is not the only one who thinks a huge buyback would be a good idea: in a July 22 post, I noted a report from Friedman Billings Ramsey analyst David Hilal, who theorized that the company could do a leverage buyback and repurchase as much as $50 billion of its shares.
Microsoft's share price is down 26 per cent so far this year. It has about $3 billion remaining of a $36.2-billion, five-year repurchase program it started in 2006.
Shares of Novell (NOVL), a computer networking software maker, continue to fall as the company attempts to migrate customers to newer products.
And that's the big risk: A cheap stock can get even cheaper as the business deteriorates. A stock may "look statistically appealing, and investors (are) seduced by it," says Matthew Kaufler of Clover Capital. And that's the danger, he says, of buying a stock "because of a price decline and nothing beyond that."
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