Stock splits have recently become a hot topic. Why? Several high-profile companies have made announcements, including Apple (NASDAQ:AAPL) and Tesla (NASDAQ:TSLA). But it seems like a good bet we’ll see more.
Now the sudden interest — from retail investors — in stock splits is a bit puzzling. A stock split only means that a company will issue more shares to all holders, which will reduce the price. For example, in the case of Apple, it will pursue a 4-for-1 stock split, which means that if you own 1,000 shares, you will get an additional 3,000. This will lower the stock price from $503 to $126.
Why do this then? One reason is that it makes it easier for retail investors to buy stock in a company (although, this benefit is not as significant anymore because various online brokerages offer the purchase of fractional shares). But a stock split may also generate more interest in the shares. Essentially, it could be a public relations event.
Regardless of the reasons, the fact is that — with the long bull market — there are many stocks that have high prices. So then which ones might we see declare stock splits?
Here’s a look at seven:
- BlackRock (NYSE:BLK)
- AutoZone (NYSE:AZO)
- Sherwin-Williams (NYSE:SHW)
- Amazon (NASDAQ:AMZN)
- Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL)
- Adobe (NASDAQ:ADBE)
- Intuitive Surgical (NASDAQ:ISRG)
Stock Splits: BlackRock (BLK)
Stock Price: $595
While the bull market has lifted many wealth management firms, BlackRock is perhaps one of the best positioned. The company has tremendous scale and broad scope, with $7.3 trillion in assets under management.
A key to the success has been BlackRock’s aggressive move into the exchange-traded fund market, which has been a strong source of growth. This type of investment vehicle has proven quite versatile, such as with providing low-cost diversification and even the ability to engage in sophisticated strategies.
But BlackRock’s long history with fixed income has been another key. With interest rates at historically low levels, investors are looking for ways to find extra yield.
Something else: BlackRock even has a thriving software business, which is called Aladdin. This platform helps financial institutions manage risks.
The result of all this is that the company continues to post strong results. In the latest quarter, profits came to $1.2 billion, up from $1 billion in the same period a year ago.
As for stock splits, there has been only one for BLK stock, which occurred in 2007 — right before the financial crisis.
Stock Price: $1,196
AutoZone, which has more than 6,000 locations, is usually a steady business. But with the pandemic, sales have been extremely volatile. They initially plunged in March but have since seen a comeback.
But when you net things out, the second quarter saw a 1% drop in domestic same-store sales. As for earnings per share, they came to $14.39, down about 10% on a year-over-year basis.
Yet AutoZone may be poised for growth. The reason is that the company has tended to do quite well when the U.S. economy is recession, as consumers generally delay auto purchases. Keep in mind that this happened during the downturns of early 1990s, 2001 and 2009.
In terms of stock splits, AZO has had had two. They occurred in 1992 and 1994 (both were 2-for-1 splits).
Stock Splits: Sherwin-Williams (SHW)
Stock Price: $672
Sherwin-Williams has taken a hit from the pandemic. In the most recent quarter, the company reported a 5.6% drop in net sales to $4.6 billion. Sherwin-Williams, though, has taken actions to reduce its cost structure and realize efficiencies.
Even with the volatility, the company has still been able to show strength with its net operating cash flows. For the first half of the year, there was a 42% increase to $1.07 billion. Sherwin-Williams has also increased its 2020 guidance for earnings per share to $19.21 to $20.71, compared to is prior forecast of $16.46 to $18.46.
Since 2000, SHW stock has been one of the top gainers, going from $18 to $672. Then again, the company has a disciplined organization, a strong brand and wide distribution. SHW has also increased its dividend payout for more than 25 years.
What about stock splits? SHW stock has had three. They were in 1986, 1991 and 1997.
Stock Price: $3,400
True, Amazon stock is fetching a lofty valuation. But hey, it seems like this has been the case since the company came public in the 1990s!
The fact is — other than the valuation — it’s hard to find fault with the company. Jeff Bezos has built a digital empire that targets some of the most important growth markets: ecommerce, entertainment and cloud computing. The pandemic has also accelerated the growth.
Now one of the common complaints about AMZN stock has been its lack of profitability. But this really does seem like a thing of the past. In the second quarter, the company reported earnings of $5.2 billion, up from $2.6 billion in the same period a year ago. Sales were up by 40% to $88.9 billion.
In terms of stock splits, there have been three for AMZN stock. They were in 1998 and 1999 — all during the roaring dot-com era.
Stock Splits: Alphabet (GOOG, GOOGL)
Stock Price: $1,629
While Alphabet stock has done well this year — up 22% — it is no where near the levels of other mega-cap tech companies. But this does present an opportunity to get a high-quality company at a reasonable valuation. Note that the price-earnings ratio is roughly 36x.
With uncertainty in the economy, the advertising business has felt lots of pressure. In the latest quarter, Alphabet suffered its first drop in ad revenues, off 8% to about $2.6 billion.
But despite this, the company has some major advantages. To this end, it owns seven properties that have more than 1 billion users: the main Google property, YouTube, Gmail, Maps, Chrome, Android and Play. Alphabet also has been showing traction with its cloud business, YouTube subscriptions and the G Suite (especially with Google Meet).
Then there are the “Other Bets.” At the heart of this is Waymo, which has raised $3.2 billion from outside investors. This business unit may ultimately become a valuable standalone pubic entity.
Regarding stock splits, GOOG stock did have an unusual one in 2014. It involved creating a new class of stock that meant having two ticker symbols. The goal was to help the founders maintain their voting power.
Stock Price: $510
Back in 2011, the prospects for Adobe looked bleak. The growth had flat-lined and the company’s offerings were showing their age. But CEO Shantanu Narayen took bold actions, as he transitioned the business toward subscriptions and cloud solutions. Initially, there was skepticism on Wall Street. But Narayen’s strategy proved to be spot on. The stock price has since gone from $25 in 2011 to $477.
Consider that Adobe now is targeting various large market segments. There is the Creative Cloud, which includes franchise platforms like Photoshop and Illustrator. Next, Adobe has the Experience Cloud. It is focused on analytics, content management and personalization to enhance marketing efforts. And finally, there is the Document Cloud. At the center of this is the PDF document standard that has capabilities like digital signatures, similar to what DocuSign (NASDAQ:DOCU) provides. This business has seen substantial growth because of the move toward remote work. Note that the Document Cloud is on track with annual recurring revenue of $1.24 billion.
In terms of the stock splits, there have been six for ADBE stock. They occurred in 1997, 1988, 1993, 1999, 2000 and 2005.
Stock Splits: Intuitive Surgical (ISRG)
Stock Price: $709
Intuitive Surgical, which is the leader in robotic-assisted minimally invasive surgery, has had a challenging year. The pandemic has led to a reduction in the number of procedures.
But when looking at the long term, ISRG stock still looks attractive. First of all, the company has a fortress balance sheet, with $6.1 billion in the bank. As a result, the company has had plenty of resources to invest heavily in research and development. In fact, rivals like Johnson & Johnson (NYSE:JNJ) have struggled to match ISRG’s capabilities.
The business model for the company is also attractive. For the most part, it generates recurring fees for services, add-ons, updates and maintenance. And finally, there is a secular trend toward robotics and automation in healthcare, especially as costs continue to escalate.
And as for stock splits, ISRG stock has had only one its history, which came in 2017.
Tom Taulli (@ttaulli) is an advisor/board member for startups and author of various books and online courses about technology, including Artificial Intelligence Basics, The Robotic Process Automation Handbook and Learn Python Super Fast. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s. As of this writing, he did not hold a position in any of the aforementioned securities.