China Internet stock Baidu Inc. (BIDU), had a 10-for-1 stock split on Wednesday. Investors seemed to gobble up the “cheaper” shares even though the underlying value of Baidu didn’t change after the split, just the share price and the number of BIDU stock shares on the market. This is a case study for why pricey stocks like tech stocks Google (GOOG) and Apple (AAPL) should execute splits of their own. Other pricey blue chips like Intuitive Surgical (ISRG), Priceline (PCLN) or MasterCard (MA) may be good candidates as well.
Consider that pre-split on Tuesday, May 11, BIDU stock closed at $714.17. Divided by 10, that puts the share price at $71.42 or so. Today, shares are trading in the mid-$76 range intraday — a 7% premium, achieved apparently by virtue of the split alone!
This is a common occurrence when an expensive stock splits to become more affordable. Take Berkshire Hathaway (BRK.B) and its massive 50 to 1 split of it’s Baby B shares. Berkshire B stock shares are up 18% YTD, and a large part of that can be attributed to the split.
GOOG stock is trading for around $520 a share, and a 10-to-1 split would place shares right in the wheelhouse of investors with a $50 range. It’s not unreasonable to see a $5 or $6 premium created by such a split – equating to a quick 10% profit for investors as a result! AAPL stock is around $250 a share, so a 10-to-1 stock split may be extreme. But surely some type of maneuver could be formulated to increase liquidity and get that same post-split bump like we have seen in Baidu.
Stocks don’t have to be in the hundreds of dollars to split, however. Green Mountain Coffee (GMCR) will see a 3 for 1 stock split on May 18, bringing shares down from around $78 to $26 a piece. This is after GMCR split 3-for-2 at almost the same time last year.
Other pricey stocks include Intuitive Surgical (ISRG), Priceline.com (PCLN) and MasterCard (MA). ISRG stock is trading around $320 a share, PCLN stock is around $240 and MA stock is around $230. There are no plans as of yet for these stocks to split, but they are some of the largest blue chip stocks to trade over $200 a share.
As of this writing, Jeff Reeves did not own positions in any of the stocks named here.
