Is it a show of Patriotism? Or Capitalism?

Only time will tell, but corporate America has been quick to step up to the plate and announce it is a buyer of stocks.

Indeed, on September 17 alone more than 100 companies announced stock buyback programs totaling billions of dollars.

To be sure, talk is cheap when it comes to stock buybacks; it is not unusual for companies to announce buybacks and then never implement or complete the buyback plans.

Only time will tell if the latest round of buybacks represents something more than just flag-waving on the part of corporations. Indeed, while a show of patriotism is nice, it is capitalism - that is, companies buying back stock because the shares are good value - that will be bullish for the market.

When evaluating buybacks, it is important to look at a few items:

• How many shares are being repurchased? Generally speaking, buybacks in which more than 3% of the outstanding shares are repurchased are more bullish for the stock than a company announcing a token buyback.
  
  
• Is the buyback merely an offset to shares being issued as a result of conversion of stock options? In recent years, it has not be unusual for companies to buy back stock, yet still have more outstanding shares at the end of the year. How can this be? Simple. The firm issues more shares in the option plan than it bought back. Generally, such buyback programs to offset option dilution don't do much for the stock.

If you are drawn to the company because it has announced a buyback program, make sure you see if the company follows through on the announcement in subsequent quarters. Companies report how much stock they repurchase on a quarterly basis in their 10-Q reports. These reports are available from the company or online at www.sec.gov.

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