Volatility is a common occurrence when putting your money to work on Wall Street. Since this decade began, the three major stock indexes have oscillated between bear and bull markets on a couple of occasions.
When volatility and uncertainty arise, professional and retail investors have a habit of seeking the safety of outperforming stocks with well-defined competitive advantages. While the "FAANG stocks" are a good example of the type of leadership investors have sought during periods of stock market unrest, it's stocks enacting splits that have truly become a safety valve during periods of heightened volatility and uncertainty.
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Walmart and Chipotle Mexican Grill joined elite company in 2024
A "stock split" is an event that allows a publicly traded company to cosmetically alter its share price and outstanding share count. The reason it's a cosmetic change is because a stock split has no impact on a company's market cap or operating performance. Stock splits are solely intended to make shares more nominally affordable for retail investors who may not have access to fractional-share purchases (what's known as a "forward-stock split"), or to increase a company's share price to ensure minimum listing standards are met on major stock exchanges (what's known as a "reverse-stock split").
Though there have been companies throughout history that went on to be wildly successful after conducting a reverse split, most attention is afforded to the high-flying businesses enacting forward-stock splits.
Since the midpoint of 2021, close to a dozen high-profile companies have announced or completed a forward split. The newest members of this elite stock-split club are retailer Walmart(NYSE: WMT) and fast-casual restaurant chain Chipotle Mexican Grill(NYSE: CMG).
In late February, Walmart enacted a 3-for-1 forward split, which was designed to encourage Walmart's employees to buy shares of their company's now more nominally affordable stock. Walmart has consistently enjoyed a size advantage over its peers, which allows it to purchase its products in bulk and undercut most grocery chains and local shops on price. This helps to explain its long-term outperformance, and the need to split its stock.
Similarly, Chipotle's stock split is also about making its share price more nominally affordable for its employees (I.e., to encourage stock ownership and investment participation). Chipotle Mexican Grill intends to complete a 50-for-1 forward split in late June if it receives the green light from its shareholders.
Thanks to its fresh food/no freezer promise, as well as its limited menu, which shortens wait times in its restaurants, Chipotle's stock has soared by more than 14,600% since its initial public offering in January 2006.
Prediction: These prominent businesses can be Wall Street's next stock-split stocks
It's unlikely that Walmart and Chipotle Mexican Grill are the only high-profile stock splits that are announced this year and into the early portion of 2025. I believe three prominent businesses are poised to follow in Walmart's and Chipotle's footsteps and become Wall Street's next stock-split stocks.
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Costco Wholesale
The first phenomenal company that has the tools and intangibles needed to join an already elite group of stock-split stocks is none other than warehouse club Costco Wholesale(NASDAQ: COST).
Not including the spin-off of Price Enterprises in 1994, Costco has conducted three stock splits, the most recent of which occurred in January 2000. After 24 successful years without a forward split, a single share of Costco Wholesale will set investors back roughly $787.
Similar to Walmart, Costco has always used its size and deep pockets to its advantage. It purchases its goods in bulk, and therefore enjoys a lower per-unit cost on what it buys. The company is then able to pass along these cost savings to its members and undercut grocers and mom-and-pop shops on price. A consistently lower price for its groceries is a big-time lure for Costco.
Costco's membership model is the other primary reason it's been such a long-term outperformer. The company's $60 and $120 annual membership fees are high margin and can go straight to its bottom line. But more often than not, Costco uses these fees as insulation to ensure that it's undercutting grocery chains and local stores on price.
Something else a membership does is encourage consumers to remain loyal to Costco. Paying $60 or $120 annually will make members think twice about spending their money elsewhere.
I'd be remiss if I didn't also mention that Costco stock is valued at a historically expensive 45 times forward-year earnings. The company's board might be encouraged to announce a stock split to ignite interest in its shares at such a lofty valuation.
FICO
A second stellar company that can follow Walmart's and Chipotle's path and become Wall Street's next stock-split stock is software and analytics provider FICO(NYSE: FICO) (previously known as "Fair Isaac").
The company behind the fabled FICO credit score has completed four stock splits since going public in July 1987. However, the last forward split (a 3-for-2 split) occurred 20 years ago, in March 2004. As of the closing bell on May 10, a single share of FICO was going for almost $1,329!
FICO is the perfect example of a business that's benefited immensely from economic uncertainty. The company's Scores segment provides credit score solutions to businesses to help them make more informed lending decisions. It also offers business-to-consumer solutions, such as its myFICO.com subscription. Through the first six months of its current fiscal year, FICO's business-to-business sales, which comprise more than half of its revenue, soared by 28%.
FICO's Software segment has been no slouch, either. This division, which provides analytics and decision-making solutions to cover customer engagement, fraud detection, marketing, and professional services, enjoyed an 8% sales boost through the first-half of fiscal 2024.
What makes FICO a strong candidate for a stock split is the fact that its previous stock splits occurred with the company's shares well below $100. Admittedly, fractional-share purchasing at many online brokers has made a company's share price somewhat of a moot point. But with FICO's stock at its highest nominal share price in history, it's only logical to expect a split sooner than later.
Broadcom
The third amazing business that can follow in the footsteps of Walmart and Chipotle Mexican Grill and become Wall Street's next stock-split stock is semiconductor titan Broadcom(NASDAQ: AVGO).
Prior to its merger with Avago Technologies in 2016 (Avago kept the Broadcom name), Broadcom had completed three stock splits. However, its new owner since 2016 has never conducted a stock split. A single share of Broadcom will set investors back about $1,333!
Broadcom's outperformance since the curtain opened in 2023 has everything to do with the artificial intelligence (AI) revolution. In April of last year, the company unveiled its Jericho3-AI chip, which is tasked with seamlessly connecting up to 32,000 AI-accelerating graphics processing units in high-powered data centers. Broadcom has the tools industry-leading businesses will be relying on to train large language models and run generative AI solutions.
But there's more to Broadcom than just AI. It generates the bulk of its revenue from the sale of wireless chips and accessories found in next-generation smartphones. The rollout of 5G has led to a sustained device replacement cycle that's fueled demand for Broadcom's next-generation wireless solutions and accessories.
Additionally, Broadcom can enjoy rapid growth potential from its ancillary industrial and automotive segments. It offers connectivity and LED solutions for next-gen vehicles, semiconductor solutions for various medical systems, and optical sensors for industrial automation equipment, to name a few of its ventures.
With Broadcom's future looking bright, a forward-stock split may be needed to keep shares within reach for investors without access to fractional-share purchases.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Costco Wholesale, and Walmart. The Motley Fool recommends Broadcom and Fair Isaac. The Motley Fool has a disclosure policy.
