4 Stocks Splitting Shares

Fools know the value of a stock split: zero. It's a nonevent. Instead of a $20 bill in your wallet, you've now got two $10 bills. You're eating 12 smaller slices of your pizza instead of six larger ones.

So if stock splits mean nothing, why do companies do them? There are a few reasons, none of which has anything to do with whether the stock is a good investment. Here are the usual ones:

  • To make the stock look cheap.
  • To increase liquidity.
  • To meet stock-exchange listing requirements.
  • To express a bullish management sentiment.

Regardless of the reason, the market tends to view stock splits as positive events, and a company's shares can get a short-term boost from the news. But if the business isn't a good, long-term company, it doesn't matter if its shares split, or whether you buy them before or after.

A split decision
That's why we pair up stock-split announcements with the sentiments of the 70,000 investors at Motley Fool CAPS. Every day, professional and novice investors rate the prospects of thousands of stocks, resulting in a rating between one and five stars (five being the best). If the best stock pickers think a company's long-term performance is outstanding, and the company has announced the bullish signal to split its shares, maybe investors should take notice.

Then we dive in and see exactly what the CAPS community has to say about some of these companies. Here is a list of stocks that have recently announced splits.

Company

Split

Announcement Date

Date Payable

CAPS Rating

MACROshares Oil Down (AMEX:DCR)

3:1

10/12/2007

10/22/2007

*

MACROshares Oil Up (AMEX:UCR)

3:1

10/12/2007

10/22/2007

NR

Carpenter Technology (NYSE:CRS)

2:1

10/16/2007

11/15/2007

****

Cameron International (NYSE:CAM)

2:1

10/2/2007

12/7/2007

*****

Source: Company SEC filings. Ratings courtesy of Motley Fool CAPS.

This is a pretty evenly split group of companies with half earning four or five CAPS stars, a signal investors are just as confident about their prospects as management apparently is.

Undivided attention
While the MACROshares Oil and MACROshares Oil Up shares are actually exchange-traded funds that are splitting to make them more liquid, they're also unique in that they are paired securities -- they're issued and redeemed in equal amounts. At least one analyst thinks that the split is occurring simply to move sales of the ETFs off the dime.  

Another oil-related stock is also splitting: Cameron International, which supplies equipment to the oil and gas sectors. It has seen its share price rise to more than $100 a stub, as the price of oil has driven companies to continue drilling, causing a surge in demand for Cameron's equipment and engineered products. Revenues increased 33% and profits gushed up 62% in the second quarter alone.

It's hard to find anyone with a bearish opinion on Cameron -- in fact, there are no bearish pitches over at CAPS -- and the All-Stars are on board with this optimistic outlook. For example, StockSpreadsheet noted at the beginning of the summer that Cameron's financial metrics looked solid.

Average annual sales growth of 31% over last 3 years, though current quarter data is slightly below that trend. Average annual EPS growth of 73% over last 3 years, though the current quarter data is also slightly below that trend. The pre-tax profit margin has been rising for the past 3 years. The EPS/book value has also been rising the past 3 years. The debt-to-equity ratio has shown large fluctuations, which is bad. The ratio rose last year and is continuing to rise so far this year, which is disappointing. Their current P/E ratio is above the 3 year trailing average, which is bad. The PEG ratio for the trailing 3 years is a very low 0.33, which is good. Cameron does not currently pay a dividend, which is disappointing. I think this stock could be worth $196.00 in five years, or about 2-1/2 times its current price of $79.14. Despite the fact that the stock does not pay a dividend, (I prefer dividend-paying companies), I still think this stock is a buy.

Player wdz says Cameron is simply "one of best oil service companies."

Split the difference
How about you? Will Cameron keep drilling for profits? Get in the mix with Motley Fool CAPS and share with tens of thousands of your fellow investors how you feel about these stock-split stories.


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