Although Wall Street is right to like the long-term potential for artificial intelligence (AI) — PwC analysts believe AI could add $15.7 trillion to the global economy by 2030 — the excitement around stock splits has played a meaningful role in lifting Wall Street’s major stock indexes to record highs in 2024.
A stock split is an event that allows a publicly traded company to change its stock price and the number of shares outstanding by the same factor. Please note that these adjustments are entirely cosmetic and have no effect on a company’s market capitalization or underlying operating performance.
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Since consumer goods juggernaut Walmart kicked off the party in late February by completing a 3-for-1 split, more than a dozen high-profile companies have followed in its footsteps, All but one were of the forward variety. Forward splits are intended to lower a company’s stock price so that it becomes nominally more affordable for ordinary investors who don’t have access to stock purchases from their broker.
While many of these “Class of 2024” stock splits are market-leading companies, their prospects may differ significantly. As we head into November, one unique stock split stands out as nothing short of a screaming bargain, while two others are worth avoiding.
While most investors are attracted to companies that do forward splits, the one prominent reverse split of 2024 is the unique stock that can be picked up with confidence in November. I’m talking about a satellite radio operator Sirius XM Holdings (NASDAQ: SIRI)which completed a 1-for-10 reverse split following the completion of its merger with Liberty Media’s Sirius XM tracking stock, Liberty Sirius XM Group, after the close of trading on September 9.
Companies that conduct a reverse stock split often do so to avoid being delisted from a major stock exchange. What makes Sirius XM unique is that there was no danger of being booted from the computer Nasdaq stock exchange. However, it has fluctuated between $2 and $7 per share for more than a decade. With some institutional investors avoiding stocks priced below $5 per share, this split was intended to put Sirius XM back on the radar of Wall Street’s smartest money managers.
One of the most attractive aspects of putting your money to work in Sirius XM is that it is a legal monopoly. Even though it still battles for listeners with traditional radio operators, it is the only company licensed for satellite radio. This boosts the pricing power of subscriptions in the longer term.