Move over, artificial intelligence (AI)! Wall Street has a new hot trend, and its name is stock-split euphoria.
A stock split allows publicly traded companies the ability to adjust their share price and outstanding share count by the same magnitude. However, these changes are purely superficial and don't impact a company's market cap or its operating performance.
Image source: Getty Images.
Since 2024 began, 13 outstanding companies have announced and/or completed a stock split, including (all are forward-stock splits, unless otherwise noted):
Among these top-notch stock-split stocks are two magnificent, inexpensive companies that are begging to be bought in September, as well as two highfliers that are priced for perfection and worth avoiding.
Stock-split stock No. 1 that can be bought hand over fist in September: Sirius XM Holdings
The first phenomenal stock-split stock you can scoop up with confidence in September is the only company of the 13 listed above that's set to conduct a reverse-stock split: satellite-radio operator Sirius XM Holdings.
Whereas most companies completing reverse splits are doing so from a position of operating weakness, this isn't the case with Sirius XM. Its roughly 3.85 billion outstanding shares have held its stock in the mid-single-digits for a decade, which might be a deterrent for some institutional investors who deem its low share price too risky. This reverse split will take place following the merger of Sirius XM with Liberty Media's Sirius XM tracking stock, Liberty Sirius XM Group in a little over week, and likely make shares more attractive to big-money investors.
What investors get with Sirius XM is easily identifiable competitive advantages . For example, it's the only licensed satellite-radio operator in the country, which affords it substantial subscription pricing power.
Sirius XM also generates its revenue differently than terrestrial and online radio providers . Instead of relying almost exclusively on advertising, as traditional radio companies do, Sirius XM has generated 77% of its net sales from subscriptions through the first-half of 2024. People are much less likely to cancel their service during periods of economic turbulence than businesses are to pare back to marketing budgets at the first sign(s) of trouble. In other words, Sirius XM is better positioned to navigate uncertain economic climates.
A forward price-to-earnings (P/E) ratio of less than 10, coupled with a dividend yield of 3.4%, makes Sirius XM stock quite the bargain for opportunistic long-term investors.
Stock-split stock No. 2 to purchase with confidence in September: Sony Group
The other magnificent stock-split stock that's begging to be bought in September is none other than Japan-based electronics goliath Sony Group. Sony's American Depositary Receipts (ADRs) are set to undergo a 5-for-1 split on Oct. 8.
Even though we're coming up on four years since Sony introduced the PlayStation 5, and it's perfectly normal to see gaming console sales taper off late in the cycle, Sony has found a couple of ways to boost one of its top revenue channels.
For instance, it's increasing the price of PlayStation 5 by about 19% in Japan to counter challenging economic conditions. It's also seeing strong subscription sales growth from PlayStation Plus, which allows subscribers to play games with their friends and store gaming data in the cloud.
Though it's best-known for gaming, Sony Group is a diverse company. It's one of the primary suppliers of image sensors used in smartphones . With telecom companies upgrading their wireless networks to support faster download speeds, consumers and businesses have been steadily trading in their old devices for new ones that are 5G-capable. The 5G revolution is providing a healthy boost to Sony's Imaging and Sensing Solutions segment.
A forward P/E of 16 is a fair (if not inexpensive) price to pay for a wonderful company that'll likely be introducing a new gaming console in about two years' time.
Image source: Getty Images.
The first stock-split stock to avoid in September: Nvidia
However, not every stock-split stock is worth buying. Even though Nvidia has been the hottest megacap stock on the planet since the start of 2023, and its H100 graphics processing unit (GPU) is the preferred choice in AI-accelerated data centers, there are too many potential red flags to ignore.
A point I've been trying to drive home for months is that there hasn't been a next-big-thing innovation, technology, or trend that's escaped an early stage bubble-bursting event in 30 years . This is a nice way of saying that investors always overestimate how quickly new innovations/technologies are adopted by consumers and businesses.
The simple fact that most businesses lack a defined game plan for their AI data center investments strongly suggests that we're witnessing the next in a long line of bubbles with AI. If and when the AI bubble bursts, I'd expect Nvidia's stock to be clobbered.
Competitive pressures can also no longer be ignored. Advanced Micro Devices is ramping up production of its MI300X AI-GPU, which is substantially cheaper than the H100, and doesn't face the same supply chain constraints as Nvidia's chips.
Beyond external competition, Nvidia may lose out on valuable data center space from its top customers . The four members of the "Magnificent Seven" that account for around 40% of Nvidia's net sales are developing AI chips of their own. Even with Nvidia's H100 and Blackwell chips almost certainly hanging onto their computing advantage, we're witnessing a concerted effort by America's most-influential businesses to reduce their reliance on Nvidia's hardware.
Nvidia's sequentially declining adjusted gross margin suggests we've witnessed the peak of the latest hot trend on Wall Street.
The second stock-split stock to shy away from in September: MicroStrategy
The other stock-split stock of the 13 that's worth avoiding in September is AI-inspired enterprise analytics software company MicroStrategy.
Although MicroStrategy is, technically, a software company, almost the entirety of its $27.2 billion market cap (as of this writing on Aug. 27) is derived from the Bitcoin (CRYPTO: BTC) it holds. As of July 31, MicroStrategy held 226,500 Bitcoins, which is more than 1% of the entire supply that'll ever be mined. It also makes MicroStrategy the top corporate holder of the world's largest cryptocurrency .
There are lot of ways to wager on Bitcoin if you're a crypto optimist. However, buying MicroStrategy stock is, arguably, the worst possible way to do it. With Bitcoin trading at $59,338 per token, as of this writing, MicroStrategy's Bitcoin portfolio is worth $13.44 billion. Yet, its market cap of $27.2 billion (placing a fair value estimate on the software segment of around $1 billion), implies a value of roughly $115,650 per token. Investors are paying a 95% premium for its Bitcoin assets , which makes no sense .
Another reason to shy away from MicroStrategy has to do with how the company is financing its Bitcoin purchases. With minimal positive operating cash flow generated from its software segment, CEO Michael Saylor has overseen a number of convertible-debt offerings to fund its acquisition of Bitcoin. If Bitcoin were to enter a steep bear market, as it's done a couple of times over the last decade, MicroStrategy could struggle to meet its debt obligations.
Lastly, I'm not convinced that Bitcoin is in any way superior in the crypto arena . Its scarcity is based on lines of computer code that could, in theory, be altered with community consensus. Most importantly, Bitcoin's payment network isn't anywhere close to the fastest or the cheapest. It's a first-mover network that's been outdone by third-generation blockchain networks. MicroStrategy tethering its future to Bitcoin looks like a mistake I'd suggest avoiding.
Sean Williams has positions in Sirius XM. The Motley Fool has positions in and recommends Advanced Micro Devices, Bitcoin, Chipotle Mexican Grill, Lam Research, Nvidia, Walmart, and Williams-Sonoma. The Motley Fool recommends Broadcom and Cintas and recommends the following options: short September 2024 $52 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy .
Most Popular
Comments / 0