Fools know the value of a stock split: zero. It's a nonevent. Instead of a $20 bill in your wallet, you now have 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. These are the usual ones:
- To make the stock look cheap.
- To increase liquidity.
- To meet stock-exchange listing requirements.
- To express 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 whether 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 105,000-plus 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'll 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 (Max 5) |
|
|---|---|---|---|---|---|
|
Stifel Financial |
3:2 |
5/12/08 |
6/12/08 |
*** |
|
|
Fluor |
2:1 |
5/7/08 |
7/16/08 |
**** |
|
|
Thornburg Mortgage |
TBA |
6/2/08 |
NA |
* |
|
|
Conexant |
1:10 |
6/2/08 |
6/27/08 |
***** |
Source: Company press releases. Ratings courtesy of Motley Fool CAPS.
Investors seem to be just as confident about these companies' prospects as management apparently is, since three of the four have CAPS ratings of three stars or better. Yet as the market takes its toll on share prices, decisions to split shares may decline -- just as we've seen over the past month or so.
However, the current conditions may also mean we'll see more reverse stock splits, like those that Thornburg Mortgage and Conexant have announced. Thornburg's shares, for example, have fallen so far that they have run afoul of New York Stock Exchange rules that say a stock cannot trade below $1 per share for 30 consecutive days. The reverse split would artificially boost its share price, but whether it can maintain that level remains to be seen. Sun Microsystems
Getting energized
Among companies executing more traditional splits, investors think Fluor will engineer a win over the market. As CAPS player Chicken114 puts it:
[Fluor is a] major engineering company involved in oil and gas production, nuclear [engineering], coal, etc. These are the people that are revered by energy companies. They get the job done. Today, the competition is at its greatest. good luck!
CAPS investor synergize, reacting to updated guidance, believes that wind, the next hot alternative-energy industry, will power the company forward.
The company boosted its full-year earnings forecast today (14-May-2008) because of a one-time gain related to the sale of its stake in a wind farm joint venture. British utility Scottish & Southern Energy Plc (SSE) will build the world's largest offshore wind farm and has awarded $3 billion in contracts to U.S. engineer Fluor Corp and Germany's Siemens AG. ... Up since February of this year. So I see a bullish sentiment there. On 13-May-2008, the price gapped up. The force of this movement is strong as it is well supported with lots of volume so I see the price to go up at least for a short-term.
Split the difference
How about you? Do you think profits will continue to flow to Fluor? Will the reverse splits save Thornburg and Conexant? 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.
