Fools know the value of a stock split: zero. It's a non-event. Instead of a $20 bill in your wallet, you now have two $10 bills. So if they mean nothing, why 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, though, markets tend to view splits as positive events, and a company's shares can get a short-term boost from the news. But if the company isn't a good, long-term business, it doesn't matter if its shares split, or whether you buy them before or after.
That's why we pair up stock-split announcements with the sentiments of more than 180,000 members of Motley Fool CAPS. If the best stock pickers think a company's long-term potential is outstanding, and the company is giving off bullish signals, maybe then investors should take notice.
Here are two stocks that recently split their shares or announced their intention to do so.
CAPS Rating (out of 5)
Current Share Price
|Monster Beverage (Nasdaq: MNST )||***||2:1||Jan. 25, 2012||$104.51|
|RPC (NYSE: RES )||****||3:2||March 9, 2012||$15.25|
Source: The Online Investor.
Don't blindly buy into a split -- you still need to do some research. Use the announcement as a jumping-off point to determine whether its shares are two or three times as good as before.
Coffee hasn't been enough of a caffeine high for Starbucks (Nasdaq: SBUX ) , so it introduced food and now wine and beer. There may be something to quaffing down a cold one at the end of the day at the same place you give your morning a jolt of joe, but it points out the need for companies to continually refresh their identities if not their products.
Energy drink maker Monster Beverage recently went through something similar, rebranding itself from Hansen Natural to name itself after its signature high-octane beverage. While some analysts worry that it needs to energize sales, as they fell a percentage point or two in the latest quarter, that Monster continues to grow in the low- to mid-20% range is testament to the beverage maker's staying power. Cosmetic makeup, rather than plastic surgery, is all that's needed to keep this beast looking pretty.
Although shares have inched back from recent highs, the stock is more than 80% higher than where it traded last year. CAPS member bigmoves sees it cashing in on its new product line, Rehab.
The monster Rehab line is soaring in popularity. They are able to charge way more for it tha[n] what it takes to make the stuff. Love monster, great stuff. To think an energy drink that hydrates and has other benefits. Will knock Rockstar recovery out of the race.
How dry I am
You had to have wondered when the natural-gas glut would have an impact on drillers. They seemed oblivious to the situation, plowing ahead and tapping into ever more resources to pull gas out of the ground, depressing prices further. After briefly flirting with almost $5-per-million-BTU pricing last summer, natural gas futures have fallen as low as $2.50.
The change being engendered is subtle, though. Chesapeake Energy (NYSE: CHK ) is making a dramatic switch from dry gas drilling, which is used solely for fuel, to wet gas, which can be also used in the chemicals and plastics industries. Dry gas rig counts will fall 67% this year.
This shift in drilling activity will impact the results of oil and gas service players like Carbo Ceramics (NYSE: CRR ) and RPC, which notes dry gas drilling jobs "generate tremendous amounts of revenue" but tend to be low-margin. The movement toward wet gas basins will hit revenues over the next few quarters, but RPC is expecting to show better profits as a result.
Highly rated CAPS All-Star member kkconway isn't concerned, as he finds management's interests aligned with those of common shareholders: "Great stock, rough quarter. High insider ownership assures that management will try harder to get back on top."
Tell us in the comments section below or on the RPC CAPS page why it should be a part of your portfolio, and add it to your watchlist to see if it will be able to grow regardless of whether drills are going wet or dry.
Split the difference
Head over to the completely free CAPS service and let us hear what you've got to say about these or any other stocks that you think we should split hairs over. Then check out this special report from The Motley Fool, about two companies that don't need foundation and makeup to change the face of retail. "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail" highlights these retailers actually growing revenue despite difficult times.