Sunday, June 16, 2024

Watch these consumer stocks for a potential boost from a stock split announcement

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Nvidia’s (NVDA) 10-for-one stock split will be a major topic of conversation next week as the AI superstar finishes its last week of trading at its current share price level of +$1,000. In a few weeks, Chipotle (CMG) will fire off a 50-for-1 stock split that will also create some buzz. While stock splits do not affect the fundamentals of a company or alter valuations, they can increase trading liquidity by making shares more accessible. Management teams looking for shareholder-friendly policies in a tough macroeconomic backdrop might consider splits if other options do not look as attractive.

Stock splits are historically positive for the companies that enact them, according to a report from Bank of America. Average returns one year after a stock split are +25% from 1980 to 2022, vs. 9% for the overall market and +12% for splits within the S&P 500 Index. Since 2022, there has been a track record of some high-profile stock splits being followed by sluggish share price reactions. That list includes Amazon (AMZN), Alphabet (GOOG), Tesla (TSLA), and Dexcom (DXCM). However, the historical list of post-stock split winners is much longer and includes big post-split rallies for Hasbro (HAS), Walmart (WMT), Monster Beverage (MNST), Expedia (EXPE), Nike (NKE), and Old Dominion Freight Line (ODFL). Of note, Tesla (TSLA) has jumped significantly after its stock splits that predated the most recent one.

In the consumer sector, the list of stocks trading at over $500 per share and with solid analyst ratings includes Booking Holdings (NASDAQ:BKNG), AutoZone (NYSE:AZO), Chipotle Mexican Grill (CMG), O’Reilly Automotive (ORLY), Grainger (GWW), Costco Wholesale (NASDAQ:COST), and United Rental (URI).

Expanding the list out to stocks trading at over $100 and with 52-week share price rallies of more than 50% adds Abercrombie & Fitch (ANF), Deckers Outdoor (DECK), Wingstop (WING), Texas Roadhouse (TXRH), Signet Jewelers (SIG), Ralph Lauren (RL), and Domino’s Pizza (DPZ) to the stock split watch list.

Perhaps the most interesting list of the bunch is the one that includes stock trading at over $100, with 52-week share price rallies of more than 50% and also short interest positions at more than 10% of the total float. That list of potential short squeeze candidates includes Williams-Sonoma (WSM), Dick’s Sporting Goods (DKS), Dillard’s (DDS), and Boot Barn (BOOT).

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