The correct answer is      (B.)  Home Depot (HD)

Yes, Home Depot (HD), the world's leading home-improvement retailer, recently announced a $22.5 billion stock buyback. After all is said and done, the firm intends to repurchase about one-third of its outstanding shares. Home Depot plans to fund the buyback with money from the sale of its HD supply business and about $12 billion from new bonds and cash on hand.

By specifically choosing to repurchase shares instead of pursuing other options, Home Depot's management is sending a clear message that they believe their stock is highly undervalued and makes a compelling investment. Not surprisingly, Wall Street applauded the buyback news, sending the shares up nearly +5% the day following the announcement on quadruple the average daily trading volume.

But while the size of Home Depot's buyback program is noteworthy, buybacks aren't all that uncommon. S&P 500 firms have now committed more than $100 billion to buybacks in each of the past six quarters -- roughly triple the amount spent just a few years ago. And considering corporate earnings are forecast to rise another +6% this year, all signs point to even more share repurchases on the horizon.

But for a buyback to be an efficient use of capital, the issuer's shares must be undervalued. The more undervalued, the greater the rate of return and the more economic value provided to shareholders. Unfortunately, many companies conveniently ignore this fact. Some unscrupulous managers use buybacks as a means to boost temporarily a stock that is going nowhere. Others (whose compensation is often tied to certain profitability metrics) pump money into buybacks to mask poor performance and improve the firm's numbers -- and fatten their own paychecks.

So, how can you smoke out the good buybacks from the bad? Start with StreetAuthority's monthly Half-Priced Stocks newsletter. In a recent issue, Editor Nathan Slaughter dove into the subject of stock buybacks. In the process, he outlined a variety of factors that can help you determine the true motives behind a firm's repurchase plan. In addition, Nathan delivered the exclusive names of over a dozen stocks that are buying back stock hand over fist -- all while trading below their estimated fair value. He also profiled two of his favorite firms, including one set to repurchase over 40% of its existing shares. To learn more about Half-Priced Stocks, including how to access this article on share buybacks, please visit this link.