- Bank of America says that companies that are very active in buying back their stock will outperform.
- Strategist Jill Carey Hall says that can be a major source of returns during periods like this one.
- Hall put together a list of “Buy” rated stocks that have been leading shares repurchasers recently.
Bank of America was one of the firms that told investors to bet on small-cap stocks going in to 2023 — and so far, their faith in smaller companies have been rewarded.
The price of the small-cap Russell 2000 index has jumped 11.1% year-to-date. That far outpaces the S&P 500, which has gained 6.7%.
Now, what should investors do from here? BofA head of US small- and mid-cap strategy Jill Carey Hall says companies that have been plowing money into stock buybacks should continue to outperform.
“Share Repurchase has been one of the best-performing small cap factors over the last 12 months,” she wrote in a recent note to clients. “Similar to in large caps, new announced Russell 2000 buybacks are sparse so far this year, so scarcity value combined with inexpensive small cap valuations should lead to a continued reward for this factor.”
Hall writes that small-company stocks are currently cheap based on their expected earnings over the next year. When that’s the case, companies that rank in the top 25% of Russell 2000 stock repurchasers have outperformed the index substantially.
“Buybacks done at inexpensive valuations make sense today — e.g. in sectors like Energy — and small caps overall are historically cheap,” she wrote.
Hall and her team used a combination of fundamental analysis and attention to buyback activity to find the companies that could continue to outperform due to their fiscal strength and their continued repurchases.
“We provide a screen of Russell 2000 stocks with the biggest YoY net reduction in share count over the last 12 months, limiting to those which are Buy-rated by BofA fundamental analysts,” she wrote.
The 25 stocks below are ranked from lowest to highest based on the percentage of their own shares that the company has bought back over the last year. Those figures are current as of February 14.