What a day to buy stock
September 22, 2008
Amid the muck of today's financial meltdown on Wall Street, Hewlett-Packard reached into its pockets to inject more confidence into its share prices. The company said it will spend an extra $8 billion on share repurchasing, a tactic that ensures a stock cannot go into free fall in conditions like those of the past seven days.
HP's flex of its financial muscle is a modest one, but a continuation of an earlier pledge to buy up itself. The figure pales compared to the Microsoft announcement of today: The maker of Windows and Jerry Seinfeld-Bill Gates commercials said it will repurchase $40 billion in stock. That Microsoft buyback, just like the one from HP (and Nike) will come in the form of cash, not borrowing. You can't do that unless you're earning healthy profits.
Not all of the US economy is in tatters, despite what trouble is being trumpeted today. HP and Microsoft and Nike still run operations which supply product that the world still demands, product which can't be easily swapped in some shadowy back-door schemes like debt paper or mortgage hedges.
Of course, the HP-Microsoft $48 billion would hardly even finance the interest on the $700 billion blank check the US Treasurer Henry Paulson demanded over the weekend. And that demand is borrowing, not a cash buyback. A Wall Street Journal article on today's buybacks called the moves "A Display of Strength." HP just wants to ensure its market capitalization won't take a pounding while the howling of the public and demands from Congress ensue over that blank check.
HP's stock dropped about two percent today in a rough and tumble trading session on the New York Stock Exchange. The company had already pledged to buy back $8 billion before this week, but had spent through only $1.6 billion of that as of July 30, the last quarterly report deadline. More than 22 million HP shares were traded today. As a point of reference, stock of the biggest savings and loan company in the US Washington Mutual traded more than 158 million shares — all bought or sold for under $4 a share.
Microsoft put another brace under its stock, raising the dividend to 13 cents per share. The company pledged to spend as much in stock buybacks as it was ready to spend on purchasing Yahoo. These companies can weather the hard times from their insides, having followed no Fantasy Island junket to impossible blue-sky futures. The rest of the world's sales — not just those from the US economy — will deliver the outside weather for HP and other tech giants to button up against.