In the weeks around corporate earnings, stocks go into what is known as a “black out” period. This is because companies are unable to buy or sell their own stock ahead of major announcements such as earnings.
Stock buybacks are a big reason why the market has performed as strongly as it has over the last couple of years, and with earnings season about to kick off stock buybacks will begin to increase an should create a good tailwind for the overall market.
The market at this point is dealing with both an ongoing trade war and uncertainty over the future of interest rates. While the market should get a clearer picture of what the Federal Reserve expects sooner rather than later, the trade war between the U.S. and China is likely to linger and keep pressure on the bull market.
Stock buybacks will help ease the concerns, and here are a few stocks that should rally as blackout periods end this earnings season.
Tech titan Apple (AAPL) has a huge share buyback program. The company spent $23.8 billion buying back its shares in first-quarter, marking the largest buyback in the tech sector for the period. Apple has huge cash reserves, and the company will continue to buy back shares to keep investors happy as iPhone sales ease. The stock took a hit in May with the overall market as trade tensions spiked but have already begun to recover as a cease-fire in tariffs between the U.S. and China eased fears of extended trade negotiations between the world’s two largest economies. Apple reports fiscal third-quarter numbers later this month on the 30th, and the company should boost its stock buybacks after the report which in turn should push shares higher. AAPL trades at $203.02 with an average price target of $211.29.
Oracle (ORCL) is another tech company with a sizable buyback program. During the first quarter, the company spent $10 billion repurchasing its outstanding stock, which was the second highest amount of any company in the tech sector behind just Apple (AAPL). ORCL has been one of the top performing stocks in the overall market in 2019, with shares currently trading just pennies below their all-time high. Despite trading at record levels, there is still good value in the stock which is trading at just 14.5 times future earnings as profits are forecast to rise 9.4% per annum over the next five years. ORCL reported in mid-June, so it is not currently in a blackout period and buybacks should continue to push shares higher. The company does not report again until late September, so you can expect to see the company continue buying back its shares through the rest of the summer. ORCL trades at $60.37 with an average price target of $55.41.
CSX Corporation (CSX)
Railroad operator CSX Corp. (CSX) has a current market cap of $61.8 billion, and the company has approved a $5 billion buyback program. After a very strong start to the year CSX has traded sideways over the last two months, but that could change after it reports second-quarter numbers July 16 and the company exits its blackout period. Strong overall economic conditions have helped drive annual earnings growth of 17.7% for CSX over the last five years, and looking ahead analysts expect the company to continue to grow profits at an annual rate of 11.3% over the next five years. CSX has posted positive earnings surprises the last six quarters and the street expects another earnings beat for Q2 with a whisper number of $1.15 for the quarter. The stock is currently trading at $76.46 with an average price target of $81.25.
Cisco Systems (CSCO)
Another tech company with a sizable buyback program is Cisco Systems (CSCO). CSCO has a current market cap of $245 billion and the company has authorized a $15 billion share buyback. Cisco will next report earnings on August 14, so the stock will be in a blackout period for the next month, so the stock which is trading just shy of its 52-week high could trade sideways in the next few weeks ahead of the quarterly report. There is definitely value in the stock at the current level with shares trading at 16.7 times future earnings which are expected to rise at an annual rate of 9.9% over the next five years. CSCO trades at $57.23 with an average price target of $58.06.