Friday, July 19, 2024
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Bank of America’s Jared Woodard believes that stock splits are positive indicators for companies

The NASDAQ is hitting a new record high today, thanks in part to a 7% jump in Nvidia shares, which has added more than 76 points to the index. Nvidia is up 18% since announcing a 10 for one split nearly a week ago, and this has sparked speculation about which companies could be next to split their shares.

Stock splits are often seen as a bullish indicator, with companies typically seeing 25% total returns in the following year compared to 12% for the broader market. Jared Woodard, head of the research investment committee and ETF strategy at Bank of America Securities, believes that stock splits can be a way for companies to show shareholder-friendly policies without having to deploy a lot of capital.

There are still a lot of high-priced stocks in the market, with about 36 companies in the S&P 500 having share prices of $500 or more, accounting for $7 trillion of market cap or about 16% of the total market cap of the index. Companies like Microsoft and Meta are approaching the $500 threshold and could be potential candidates for a split.

Historically, companies in sectors like healthcare and consumer discretionary have been more likely to split their shares, with names like Eli Lilly and Booking Holdings being mentioned as potential candidates. Companies like Super Micro and Lamb Research, with share prices in the $800-$900 range, could also be next in line for a split.

Woodard also notes that companies that split their shares and enter indices like the Dow or S&P 500 could see an added boost in their stock price. With valuations at all-time highs, more executives may be looking to stock splits as a way to show investor-friendly policies without committing to high valuations.

Overall, the trend of stock splits is expected to continue, as companies look for ways to attract individual investors and boost their stock prices. With the current market conditions, stock splits could be a strategic move for companies looking to capitalize on investor sentiment and drive returns in the coming year.



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