A Phenomenal Year for Wall Street and Investors
The past year has been nothing short of extraordinary for Wall Street and the investing community. Major indices, such as the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite, have seen remarkable gains, with some reaching record-closing highs. While the artificial intelligence (AI) revolution has undoubtedly played a significant role in lifting the broader market, it’s essential to acknowledge the impact of stock-split euphoria on several market-leading businesses.
Understanding Stock Splits
A stock split is a tool used by publicly traded companies to adjust their share price and outstanding share count. This cosmetic change doesn’t affect a company’s market capitalization or underlying operating performance. There are two types of stock splits: reverse splits, which increase a company’s share price, often to ensure continued listing on a major stock exchange, and forward splits, which make a company’s shares more affordable for retail investors and employees.
A Standout Stock-Split Opportunity
Among the numerous forward stock splits that have occurred this year, one historically cheap stock-split stock stands out as a compelling buy opportunity. Sirius XM Holdings (NASDAQ: SIRI), a satellite-radio operator, conducted a 1-for-10 reverse split, which puts it back on the radar of top money managers. This move resolved the issue of institutional investors being hesitant to buy stocks trading below $5 per share.
Why Sirius XM is a Compelling Buy
Sirius XM’s unique position as a legal monopoly in the satellite-radio industry provides exceptional subscription pricing power, allowing it to stay ahead of the inflationary curve. Its revenue diversity, with 76.5% of net sales coming from subscriptions, makes it better positioned to contend with economic downturns. Additionally, the company enjoys cost predictability, and its stock is historically cheap, yielding over 4% and trading at just 8 times forward-year earnings.
A Stock-Split Stock to Avoid
While Super Micro Computer (NASDAQ: SMCI) appears well-positioned to benefit from the rise of AI, its clouded outlook makes it a stock to avoid. The company’s recent 10-for-1 forward split was triggered by its rapid stock price growth, but concerns surrounding its financial statements, supplier dependence, and the potential AI bubble bursting make it a risky investment.
Don’t Miss Out on Opportunistic Buys
Investors should be on the lookout for opportunistic buys, especially in the wake of stock-split announcements. By doing so, they can capitalize on undervalued companies with strong fundamentals. Remember, timing is everything in the world of investing, and being prepared to pounce on the right opportunities can lead to significant returns.
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