50 Buyback Cannibals — and the 20 That Are Just Getting Started
The edge is spotting them before the crowd does
“The person that turns over the most rocks wins the game.” — Peter Lynch
There are tens of thousands of publicly listed companies worldwide. I’m not trying to look at all of them. Most are fairly valued (or overvalued), and I don’t have time for that.
I use only three filters.
If I can’t explain how the company makes money in one minute, I’m out. There are also entire industries I simply don’t touch. Biotech, for example. How would I know whether molecule A will work better than molecule B? I have no clue. If you’re not a scientist or insider, investing in pharma is gambling, not investing.
I look for things that are statistically cheap. I scan lists of stocks hitting their 52 week lows. I look for companies trading at hidden P/E ratios of 1 or 2. By hidden P/E, I mean normalized earnings power once the noise fades, not the headline number on a screener. I’m hunting for something that makes no sense, something so obvious it hits me like a baseball bat. Markets are action driven, and every now and then you get an opportunity like that.
Then comes the most important filter. I want companies that return most of their free cash flow to shareholders, ideally through buybacks. The only exception is when a company is reinvesting capital into clearly profitable growth. Otherwise, excess cash should be returned.
At that point, out of 50,000 stocks… there are none left. 😄
Jokes aside, it massively narrows the list. But every now and then, when I flip over a small rock, I still find something that grabs my attention.
Why Munger Loved “Cannibals”
“Pay close attention to the cannibals” - Charlie Munger
Below is a table of companies that have been extremely aggressive in buying back their own shares over the last five years. The data runs through the end of 2024, so small deviations are possible. Either way, it’s a great starting point for a “shopping list.”
I already wrote a full deep dive on AutoNation. The market keeps assigning it a low valuation, while the company keeps eating itself through massive buybacks.
Buybacks alone don’t automatically make something a great investment. What matters is the combination. The business has to stay structurally strong and keep producing real free cash flow, and management has to keep using that cash to retire shares intelligently. If one of those breaks, the whole story breaks.
And that’s why the next list matters more than the first one. Below I share 20 names I’m tracking or own right now, businesses that have only recently started (or are about to start) returning close to 100% of free cash flow to shareholders.
The edge is spotting them before the crowd does.
