The Misfits: Amphenol Corporation (APH)

The electrical and signal component maker is a splendidly dull business that could take a word of advice from Warren Buffett or Jamie Dimon.

Benjamin Franklin drawing electricity from the sky, Benjamin West, circa 1816, oil on slate (Philadelphia Museum of Art)

If I wrote a full breakdown of why Amphenol Corporation (NYSE: APH) is a great business, you would all be asleep within the first few hundred words. Even by my standards, Amphenol’s business is remarkably dull (in the best way possible).

So instead of gushing about Amphenol’s 65,000% return over the past 30 years (!!!), let’s focus on a topic that is top of mind across the financial media.

Buybacks.

A lot of market commentators have noted that Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) recently paused its buybacks. It may not be the reason, but one possibility for the buyback pause is that Buffett views Berkshire stock as a little too pricey to repurchase shares. Similarly, JPMorgan Chase’s (NYSE: JPM) CEO Jamie Dimon recently noted on the most recent conference call that buying back JPMorgan’s stock at its current levels (above 2 times book value) isn’t the best use of capital.

In my opinion, this is a stark contrast to Amphenol’s current buyback plans. Even though the company’s stock trades at its highest valuation since the dot-com bubble, management continues to plow cash back into buybacks as part of its 3-year, $2 billion buyback authorization.

Are all buybacks created equal? Why do management teams continue to buy back stock when prudent capital management suggests they shouldn’t? If Buffett and Dimon are celebrated for turning buybacks on and off when it is prudent, why don’t other companies do it?

Let’s (quickly) dig into Amphenol’s business and explore these pressing investing questions about buybacks.

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