International Business Machines Corp. (IBM), Philip Morris International Inc. (PM), AT&T Inc. (T): Sometimes It’s Better for Stocks to Go Down

Still, Philip Morris International Inc. (NYSE:PM) has been hit harder than most. The company’s Q2 earnings were hurt by a strong U.S. dollar and falling sales within Europe, causing the company to cut full year estimates.

Having said that, if we assume that Philip Morris International Inc. (NYSE:PM) buys back $1.5 billion worth of stock during the third quarter at an average price of $85 per share, rather than the average of $93 per share seen during the second quarter, the company will acquire 17,647,058 shares — 9.4% more than it would have acquired at the higher average of $93.

As tobacco stocks face falling earnings, buybacks look like the best way to boost EPS. Philip Morris International Inc. (NYSE:PM) has bought back almost 25% during the past five years.

The old dog injects more energy
Dividend investors will also be glad to see the shares of AT&T Inc. (NYSE:T) “languishing” and offering a 5.2% yield. After spiking to a high of $39 per share during April, the stock has now collapsed more than 16% from its peak.

AT&T Inc. (NYSE:T) recent decline has been a mix of a general dividend stock sell-off, as mentioned above with Philip Morris, and its underperformance when compared to peer Verizon. AT&T Inc. (NYSE:T) has been engaged in a losing war with Verizon for the most lucrative end of the highly lucrative smartphone market, and for this investors have been punishing the stock.

That said, not only does this decline mean a higher yield, but it also means that the company will be able to repurchase more stock, resulting in higher earnings. AT&T Inc. (NYSE:T)’s $11 billion buyback is one of the biggest announced this year, and if executed at April’s stock price of $39, it would have reduced the company’s total number of shares outstanding by 5.5%. However, at the lower price of around $34 per share, the company will be able to reduce the total number of shares outstanding by 6.2%.

For the long term investor with cash in companies that are buying back stock, it pays to be patient and enjoy falling share prices, as in the longer term, you will end up being better off.

The article Sometimes It’s Better for Stocks to Go Down originally appeared on Fool.com.

Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool owns shares of International Business Machines (NYSE:IBM) and Philip Morris International (NYSE:PM). 

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