by Jim Woods | March 18, 2014 11:20 am
Athletic clothing maker Under Armour (UA) made big headlines Monday, announcing that its board had approved a 2-for-1 stock split. The news prompted a jump of 2% in UA stock, which helped shares close at a new all-time high of $119.67.
The stock split announcement was the second such move by the Under Armour board since the company began its publicly traded life in November 2005. And if history is any harbinger of things to come, UA stock is in really good shape — since the first stock split in July 2012, shares are up more than 150%.
Monday’s event reminds me of the halcyon days of trading in the late-1990s tech bull. I was working at a small private hedge fund then, and one of the tools we used to juice up gains was something called a stock split alert service. In a sign of the times, we used to receive a page (yes, via a pager) when a company had announced a stock split. This was important information, because during that dream-like bull period, a stock usually was good for a 2% to 5% pop on news of the split.
I always thought this was strange, because from a pure math standpoint you don’t gain anything with a split. If you have a stock trading at $100 and you own 100 shares, you have $10,000 worth of that stock. After a 2-for-1 split, you’d have 200 shares, sure, but they’d only be worth $50 each, and you’d still have the same $10,000 in stock.
Yet the curious logic of investing applies here, and in this case, the lower share price actually does attract more investors (especially individuals), and more capital. The reason why is that psychologically, retail investors tend to think they are getting more for their money if the share price is low. The willingness to buy a stock, and more shares of a stock, when it trades at a lower nominal price prompts some buying, and that prompts a rising share price.
The split announcement by Under Armour caused me to speculate on what other companies might be ripe for a 2-for-1 split, and would hence benefit from a headline trading price set about half of where it trades at today.
The ideal candidates would be 1) Big, well-known names that consumers have embraced, 2) High-profile stocks individual investors feel comfortable trading, and 3) stocks that trade above $100 a share.
So, if you are making up your personal watch list, then here are six stocks that fit that above criteria.
Each of these companies would likely get a trading boost, and possibly a sustained boost, by seeing their respective share prices come down by at least half. In the case of Priceline, it could easily undertake a 3-for-1 split and still have a relatively high share price.
Finally, one company that isn’t on my list is Google (GOOG), but only because the Internet search giant already announced it will undergo a split later in the year.
As of this writing, Jim Woods was long AMZN, AAPL and TSLA.
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