Update - October 25, 2022

These Three Stocks Are Greatly Outperforming

There’s an interesting catalyst brewing in the stock market.

It’s one that could have some stocks – a certain set of stocks that I’ve told you about many times – surging into the end of the year.

According to the folks at Goldman Sachs, some $190 billion worth of corporate stock buybacks are likely to occur between now and the end of the year.

That’s nearly $5 billion per day.

What’s more, there are some big holidays along the way, which typically come with light trading activity.

That means we’re likely to see days with very strong buyback activity… and some very strong jumps in stock prices.

This doesn’t mean we’ve reached the end of the bearish sentiment. It doesn’t mean we can stop worrying about what the Fed is doing… or the result of midterm elections… or the threat of World War III… or the outsized strength of the dollar… or politicians gone crazy… or the weakness in the Treasury market… or surging prices… or a weakening jobs market… or a recession.

Those threats remain.

But this upcoming buyback frenzy does mean two very important things.

First, it will create some ideal short-term trading opportunities. Several companies with large buybacks plans are in our model portfolio.

Second, this artificial boost (spurred by a change coming to the tax code next year) will create a bit of a trap. To the unaware, surging share prices brought on by companies buying their own shares will look like the start of a run higher. But that won’t be the case.

These buybacks stocks won’t be rising because P&L statements suddenly look brighter or company outlooks are suddenly any rosier. They’ll be rising because company executives don’t have anything better to do with their cash… and they get rich when the share price rises.

In other words, it’ll all be artificial.

As long as we understand that and don’t get sucked into thinking things are better than they are… we should be able to take full advantage of the trend.

We’ve played the idea many times before. Buybacks, in fact, were one of the leading reasons stocks soared to record highs in the zero interest rate environment of the last decade.

The trend has not died. In fact, it’s likely to come roaring back over the next two months… with most of the action almost certain to come in November (before the holiday season).

In our portfolio, keep an eye on Prudential Financial (PRU). It’s done well since we got in last month. It is set to buy $1.5 billion worth of its stock this year. So far, it’s bought about a billion dollars’ worth.

That means it’s got $500 million to burn over the next 60 days.

Quanta Services (PWR) has plans to purchase some $580 million worth of its own shares between now and next July. So far this year, it’s purchased less than $100 million worth.

It’s got a lot of spending to do.

Kearny Financial (KRNY) has perhaps the most aggressive buyback plan of the stocks in the Modern Asset Portfolio. It’s not putting a price tag on its effort. Instead, it intends to repurchase 4 million shares… on top of the 7.6 million shares it just bought.

Together, the moves will reduce the company’s share count by close to 15%.

It’s exactly what we want to see when markets are falling. These aggressive buybacks act as a life preserver, buoying stocks and keeping losses minimal.

All three stocks have outpaced the S&P 500 this year, with Quanta – up 20% – leading the way.

It’s not a coincidence. It’s part of our proven strategy.

I’ve long talked about the power of buybacks. When everything is going up, it’s not as evident.

But look at the charts now.

Owning buyback-focused stocks will be critical over the next two months. Our portfolio has us well positioned.

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