Stock Splits with Growth Potential for Your Portfolio

Investing in stocks with growth potential can be a smart move for your portfolio. A stock split can significantly increase the value of your investment, making it a great option to consider.

Some companies that have experienced significant growth after a stock split include Microsoft, which increased its stock price by 50% after a 2-for-1 split in 2003. This type of growth can be a major boost to your portfolio.

A stock split can also make a company's stock more attractive to investors, which can lead to increased demand and higher stock prices. This is what happened with Apple after a 7-for-1 split in 2014, resulting in a 20% increase in stock price.

Investing in companies with a history of successful stock splits can be a savvy move.

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A stock split is like cutting a pizza into more, smaller pieces. The total amount of pizza stays the same, but you now have more slices to share with others. This is similar to a stock split, where a company separates each outstanding share into multiple shares, making it easier for investors to buy in.

The main goal of a stock split is to make the company's shares more affordable for individual investors. A high share price can deter people from investing, so a stock split can help broaden the investor base.

A 2-for-1 stock split, for example, would cut each existing share in half, resulting in 16 smaller slices of pizza. The number of shares increases, but the total value of your shares stays the same.

Here's a breakdown of how a stock split affects shareholders:

For instance, if you own 100 shares of a company with a share price of $100, a 2-for-1 stock split would result in 200 shares at a price of $50 per share. The total value of your shares remains the same, but you now have more shares to sell or trade.

A stock split can be a good time to reassess your investment strategy and ensure it aligns with your financial goals. It's essential to keep an eye on the company's performance and not base decisions solely on the occurrence of a stock split.

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If a company declares a two-for-one stock split, you would now own twice as many shares at half the original share price.

To calculate the number of shares you own post-split, multiply the number of shares you owned before the split by the stock split ratio. For example, if you owned 100 shares and the company declares a two-for-one split, you would now own 200 shares.

The share price post-split is found by dividing the original share price by the stock split ratio. In the case of a two-for-one split, the share price would be halved to $50 per share.

The total value of your shares remains the same before and after the split. For instance, if you owned 100 shares worth $15,000 before a 3-for-1 split, you would still own shares worth $15,000 after the split.

Here's a breakdown of how to calculate the number of shares owned post-split for different stock split ratios:

Super Micro Computer is a prime example of a company with immense growth potential. It's one of the premier providers of custom servers in the industry, backed by over three decades of experience.

The company's robust growth has sent its stock price soaring, delivering gains of 637% since early last year. This likely factored into the company's decision to announce a 10-for-1 stock split earlier this month.

Wall Street believes there's more upside ahead, with Loop Capital analyst Ananda Baruah estimating Supermicro's revenue run rate will climb to $40 billion by the end of fiscal 2026.

The VanEck Semiconductor ETF is a great example of a fund that's benefiting from the current trend in semiconductor stocks. It holds about 25 stocks, many of which have been spiking this year.

One of its largest holdings, Nvidia, has tripled since the start of 2023. This is largely due to the loosening of supply-chain disruptions caused by the COVID-19 pandemic.

The industry is also soaring since OpenAI released its generative artificial intelligence chatbot, ChatGPT. Semiconductor makers produce the chips needed for the massive computing power required by generative AI.

The VanEck Semiconductor ETF underwent a 2-for-1 share split in May, reducing the SMH share price by half. This split likely came because of the underlying growth in the chip stocks that make up the ETF.

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Monster Beverage is an energy drink company that has done extremely well over the last five years, up close to 90%. The company declared a 2-for-1 stock split in late February, which went into effect in March. This split reduced the stock price by half, making it more affordable for investors.

Monster Beverage's stock price has been on the rise since the split, increasing by over 14%. Shareholders now get to own two shares for every one they held before, and they've also had an unrealized capital gain. This is a significant advantage for investors who want to create income with a covered call strategy.

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Here are some key statistics about Monster Beverage's stock split:

The stock split has made it significantly cheaper to buy 100 shares of MNST stock, which can be used to create income with a covered call strategy. Prior to the split, investors had to spend roughly $10,000 to buy 100 shares, but now it costs about $6,000.

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Companies split stocks to make them more accessible to a broader range of investors, particularly smaller ones who may view high-priced shares as too expensive.

A stock split takes the price down to a more attractive or accessible level, making it easier for investors to buy more shares.

Psychology plays a role in stock splits, as investors perceive a lower-priced stock as more affordable and attractive.

A lower stock price allows access to investors with smaller portfolios and less risk of overweighting the portfolio into one stock.

Warren Buffett's company, Berkshire Hathaway, has never split its stock, with shares trading for about $463,000 apiece as of December 2022.

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Alphabet went eight years without a split before announcing a 20-for-1 split in July 2022, which took the adjusted share price down to $112.64.

Amazon split its share three times between June 1998 and August 1999, only to see its share price climb to $2,786 before also splitting 20-for-1 in June 2022.

A stock split doesn't change a company's fundamental value, but it can have a positive psychological impact on investors, making them feel they're getting more for their money.

A lower-priced stock can seem more attainable or have more "room to grow" than a higher-priced one, even if they represent the same ownership stake in the company.

This perception can lead to increased demand for the stock and a short-term boost in stock price following a split announcement or execution.

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A stock split can have a positive impact on a company's financial performance. It can make the stock more accessible to a broader range of investors, potentially increasing the investor base.

Increased trading volume is a direct result of a stock split, making it easier for investors to buy and sell the stock. This, in turn, leads to greater liquidity.

Smaller bid-ask spreads are a common outcome of increased trading volume, making it easier for investors to enter and exit the market. A more stable price is a result of this increased liquidity.

Investors often perceive a lower-priced stock as more affordable and more likely to have room to grow. This perception can lead to increased demand for the stock.

The overall value of the company remains the same after a stock split, but the psychological impact can be significant.

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In recent times, some notable tech companies have taken the leap and performed or announced stock splits. NVIDIA did a 10-1 stock split on June 10, 2024, making its shares more affordable and potentially attractive to investors.

Broadcom announced a 10-for-1 stock split effective July 15, 2024, which could bring more liquidity to the market. LAM Research is set to follow suit with a 10-for-1 stock split scheduled after market close on October 2, 2024.

Amazon, however, took a different approach in 2022, doing a 20-for-1 stock split when its shares were trading above $2,000. This move aimed to make its stock more accessible to a broader range of investors.

Here's a quick rundown of the recent tech stock splits:

Stock splits can be a bit confusing, but let's break it down. A stock split doesn't change the value of the company, so if you held shares worth $10,000 before the split, you'd still hold shares worth $10,000 after.

The number of shares in circulation increases, and the share price of each individual share declines. This means you'll have more shares, but each one will be worth less. Think of it like cutting a slice of pie into more pieces – the total size of the pie doesn't change, but more people can get a slice.

Here are the key effects of a stock split on shareholders:

The market value of the company's equity and the value attributable to each existing shareholder remains unchanged. This means your overall stake in the company hasn't changed, but you now have more shares to work with.