This has been nothing short of a phenomenal year for Wall Street and the investing community. The timeless Dow Jones Industrial Averagebenchmark S&P500and focused on growth stocks Nasdaq Composite have posted gains of 19%, 26% and 27% respectively as of the closing bell on November 27, hitting multiple all-time highs.
While the artificial intelligence (AI) The revolution has been undeniably important in lifting the broader market, but it would be unwise to ignore the role of the stock-split euphoria that has lifted a number of market-leading companies to new heights this year.
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A stock split is a tool that publicly traded companies can use to cosmetically adjust their stock price and outstanding share count by the same amount. These changes are “cosmetic” in the sense that adjusting a company’s share price and number of shares does not affect its market capitalization or underlying operating performance.
Stock splits come in two varieties, with investors flocking to one more than the other. The less popular of the two are reverse splits, which are intended to increase a company’s share price, often with the aim of ensuring its continued listing on a major stock exchange. This type of split is usually done by struggling companies and requires a lot of extra research on the part of investors.
In comparison, investors are attracted to companies that conduct long-term stock splits. A forward split is intended to make a company’s shares more nominally affordable to retail investors and/or employees who do not have access to purchases of fractional shares from their broker. This type of split is almost always carried out by companies that handily outperform and innovate better than their competition.
Since the start of 2024, more than a dozen leading companies have announced or completed a stock split. All but one are of the forward variety. However, the prospects for these companies differ considerably.
As we head into December and prepare to turn the page on 2024, one historically cheap stock split is begging to be bought hand over fist, while another previously high-flying AI stock is worth avoiding.
Although there have been well over a dozen forward stock splits this year, the most attractive of all the splits in December is the only branded company to have done a reverse split. I’m talking about a satellite radio operator Sirius XM Holdings (NASDAQ: SIRI).