Netflix, Align Technology, Charter: Are These Stocks Next In Line For A Split?
With the big market rally this year, many stocks are trading at around all-time highs. Considering this, high profile stock splits have made a comeback, with Apple and Tesla splitting their shares in late August. These splits have helped to drive prices higher, for perspective Tesla stock has soared by almost 2x since its five for one split was announced. Although splits don’t change the fundamentals of a company, investors see them as a sign that growth could remain strong going forward. In our indicative theme of Stocks Poised For A Split, we’ve identified a group of large-cap companies in the S&P 500 that trade at above $500 per share, have seen strong revenue growth and significant price appreciation this year, making them prime candidates for future stock splits. While our last update in September included Nvidia, Amazon, Alphabet , and Intuitive Surgical, names that have been added include Align Technology, Netflix, and Charter Communications. Below is a bit more about these companies and why they’ve been outperforming.
Align Technology is a company best known for its Invisalign dental aligners. The company has fared well despite the Covid-19 pandemic, with its Q3 2020 sales soaring by about 24.9% versus last year. Investors have also been cheering the company’s quick international expansion, with Invisalign shipments outside the U.S growing 34% last quarter.  The stock trades at about $504.
Netflix stock has also had a solid run, rising by over 50% year-to-date, as the company added about 28 million subscribers over the first nine months of this year, as people avoided public forms of entertainment and stayed home through the Covid-19 pandemic. Netflix also appears confident about its pricing power, despite the launch of lower-priced services such as Disney+ and Apple TV+, as it raised pricing on its popular tier in the U.S in late October.
Charter Communications, a major telecommunications provider, has seen its stock rise by 36% year-to-date driven by robust growth in Internet subscribers as the work and learn from home trend accelerated through the Coronavirus pandemic. Interestingly, the company also added cable TV customers over the last two quarters, defying the broader trend of cord-cutting.
[Updated 9/17/2020] Stock Split Candidates
Stock splits are back in favor this year, with Apple and Tesla splitting their shares late last month. Although splits don’t change the fundamentals of a company, they often cause a run-up in the stock price post-announcement as investors see them as a signal that growth could remain strong going forward. In our indicative theme of Stocks Poised For A Split we’ve identified a group of large-cap companies in the S&P 500 that have seen strong growth and price appreciation that could be prime candidates for a future stock split. The theme has returned about 37% year-to-date, versus 5% for the S&P 500. It remains up 113% since 12/31/2017 vs. 27% for the S&P. Below is a bit more about the companies in our theme.
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Nvidia: The maker of graphic processing units (GPUs) has seen its stock soar over 110% this year, driven by growing demand from data centers and its recent deal to buy chip designer ARM. The stock trades at a little over $500 and saw its last split about two decades ago.
Amazon also saw its last split about two decades ago and currently trades at around $3,080. The stock is up by 67% year-to-date, as the Covid-19 pandemic caused demand for its e-commerce and cloud services business to surge.
Intuitive Surgical a company that develops products for robotic surgeries carried out its last stock split in 2017. The stock trades at about $690 currently and is up by about 17% year-to-date.
Chipotle Mexican Grill CMG stock trades at over $1,260 presently and the company hasn’t done any splits to date. The stock is up by about 51% year-to-date.
Alphabet Google’s parent company carried out its first and only stock split in 2014 and the stock trades at over $1,500 presently. The stock is up by around 13% year-to-date.
What if instead, you are looking for a more balanced portfolio? Here’s a top-quality portfolio to outperform the market, with over 100% return since 2016, versus 55% for the S&P 500, Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.
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