by Marc Bastow | August 22, 2012 1:21 pm
It’s no secret that the individual investors has checked out of Wall Street. Volume is at five-year lows, and it’s not just August seasonality to blame.
Fear’s certainly part of it. The average retail investor is scared to death of losing money. Despite this year’s 12% rise in the S&P 500, and a 25% gain over the past year, would-be investors stay outside the gate, fearing the next flash crash, the next downturn.
But consider another barrier to entry for the retail investor: high prices for quality stocks. As stated by CNN Money’s Hibah Yousuf:
“The S&P 500 has more than doubled in value since the March 2009 lows, so the prices of many of the stocks in the index are also twice as high.”
Investors buy into stocks wanting the same obvious outcome: Higher prices. You know — buy low, sell high. But it’s much more difficult to brave buying high, then selling higher.
Granted, sticker price logically shouldn’t matter — whether you buy one share for $100, or 100 shares for $100, you’re still investing $100, and the returns will be the same — but people are drawn to cheap stocks, and thus, people react to stock splits, which make shares cheaper (at least on the sticker price).
So while it might not be a silver bullet to re-engaging the retail investor, one thing I would love to see that might give the market some spark: a healthy run of big-name stock splits.
Imagine if some of America’s highest flyers decided to split their shares in a reasonably short time span. While Coca-Cola (NYSE:KO) and Dollar Tree (NASDAQ:DLTR) have yet to see their post-split pops, the announcements fueled more buying in the aftermath. Google (NASDAQ:GOOG) — which will split its stock 2-for-1 in October — is up more than 20% since it made the news public. (Though laughably, after the split it still will be above $300.)
While an orchestrated market-wide nod to retail investors might be a pipe dream, there’s a number of stocks that could generate some electricity from the retail crowd with stock splits.
Apple (NASDAQ:AAPL) is the poster child for a split, if for no other reason than to qualify for inclusion in the Dow Jones Industrial Average. But it’s big, it’s beloved, and it produces. While even a 3-for-1 split (to $220 per share) would still put it out of most investors’ comfort zones, it’s a good bet most investors would be more willing to reach for $200 than nearly $700.
Amazon (NASDAQ:AMZN) might join our party, if just to seem affordable on some level. A 2-for-1 split would get AMZN shares to around $120 — and maybe help people forget about that it’s trading at an absurd 300 times earnings.
Chevron (NYSE:CVX): Dow component. Oil giant. Dividend hero. However, while CVX shares recently hit all-time highs, that spot is just 3% off early 2011 highs. The sky might just be the limit at around $110 per share. The company already pulled off a 2-for-1 split in 2004; another would put CVX shares at a comfortable $55. Imagine how affordable that 3%-plus yield would seem then.
IBM (NYSE:IBM) is another Dow stalwart trading in the clouds, though it has wavered since reaching all-time highs around $210 in April. IBM has executed seven stock splits in its history, the last one coming in 1999. With the share price hovering around $200 per share, another two-fer could get a lot more people on the Big Blue bandwagon.
Priceline (NASDAQ:PCLN) shares have lost some of their luster, and in what some might view as a panic, the company brought William Shatner “back to life” in its ads. While having Captain Kirk back on the bridge is comforting, a 3-for-1 split would get the stock below $200 per share, and a 6-for-1 split (countering the 1-for-6 reverse split enacted in 2003) would put it in double digits.
Visa (NYSE:V) is soaring this year, and why not? People are putting down the money clip and pulling out their cards — both here and abroad. Visa’s users get rewards — why shouldn’t its investors, who also have to deal with a paltry sub-1% dividend? People know Visa, and they know it’s everywhere — a 2-for-1 split to roughly $60 per share would convince more of them to get in on the action. (P.S.: The same goes for MasterCard (NYSE:MA), which has wallowed in range since eclipsing $400 this year.)
W.W. Grainger (NYSE:GWW) is the surprise name, isn’t it? Most small investors probably have never heard of the Illinois gem, but this distributor of maintenance, repair and operating supplies has plateaued after hitting all-time highs earlier this year. People are keeping their cars longer, and every manufacturer on the plant needs maintenance sometime, so the company’s business-side success should continue. And what better way than a 3-for-1 stock split to the $70 range to let more people in on the news?
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing he did not hold a position in any of the aforementioned securities.
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