Buying low and selling high is the ultimate goal on Wall Street.
There’s a simple motto that sums up how to invest: Buy low, sell high. It sounds easy, but it’s more difficult in practice.
However, there are ways for investors to maximize their chances of buying low and selling high. One is to hold onto investments for a long time, thus giving the power of compounding more time to work its magic.
Another way is to identify and invest in companies that repurchase a lot of their own shares. Here I’ll cover three such companies, and explain why those share buybacks are so useful for investors.
Image source: Getty Images.
Meta Platforms
First up is Meta Platforms (META -0.05%). Thanks to the company’s enormous share of the fast-growing digital advertising market, Meta has quickly become a cash-printing machine.
In its most recent quarter (the three months ending on March 31, 2024), Meta generated $12.5 billion in free cash flow. This river of cash enabled the company to return value to shareholders through share buybacks (totaling $14.6 billion in the quarter) and, for the first time ever, a quarterly dividend payment of $0.50/share. Granted, the payouts (share buybacks and dividends) exceeded the company’s free cash flow, but the company’s massive cash reserves of $58 billion easily covered the deficit.
In any event, Meta reduced its overall shares outstanding by 11% over the last five years. That’s great news for investors, because as the number of outstanding shares decreases, the value of each remaining share increases. And that’s the beauty of stock buybacks: They can provide a boost to share prices.
Meta has one of Wall Street’s biggest share buyback programs, and its 11% reduction in outstanding shares is impressive, but it’s not the largest reduction on this list. That honor goes to a travel website operator.
Booking Holdings
It might come as a surprise, but when it comes to stock buybacks, Booking Holdings (BKNG 0.58%) is a giant.
Granted, the overall amount of its buybacks is less than that of much larger companies like Apple, Meta Platforms, or Exxon Mobil. However, on a percentage basis, the company tops the list.
BKNG Shares Outstanding data by YCharts
Over the last five years, Booking Holdings reduced its overall shares outstanding by almost 21%. The company repurchased about $26 billion worth of its shares, which is astonishing for a company with a market cap of only $128 billion.
The result has been fantastic for investors. Shares are up 120% over the last five years, even after accounting for the lackluster pandemic-influenced years between 2020 and 2022.
Alphabet
Finally, there’s Alphabet (GOOGL 0.23%) (GOOG 0.23%). Similar to fellow digital advertising giant Meta Platforms, Alphabet generates a ton of cash thanks to its lucrative suite of Google advertising businesses (Google Search, YouTube, and Google Network).
Indeed, in its most recent quarter (the three months ending on March 31, 2024), the company’s Google advertising segment generated $61.7 billion in revenue. Overall, the company’s quarterly revenue increased 15% year-over-year to $80.5 billion. Net income increased to $23.7 billion.
In turn, the company announced its first-ever dividend payment of $0.20 per share; it also enlarged its share repurchase program to $70 billion.
All in all, Alphabet has reduced its total shares outstanding by more than 1.5 billion shares, or 11%, over the last five years.
GOOG Shares Outstanding data by YCharts
Investors should remember that companies that prioritize a long-term strategy of stock buybacks are often smart investments, as the reduction in outstanding shares drives higher prices as the overall supply of shares shrinks. In turn, that can help investors buy low and sell high, which is the ultimate goal on Wall Street.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Jake Lerch has positions in Alphabet and ExxonMobil. The Motley Fool has positions in and recommends Alphabet, Apple, Booking Holdings, and Meta Platforms. The Motley Fool has a disclosure policy.