Investors appear enthusiastic about stock splits, even though a split does not change a business' value in any way. Still, stock splits tend to have two positive effects on stocks: One, they are evidence that a company has done quite well, and that management expects further price appreciation; otherwise its stock price wouldn't be high enough to split. Second, a split gives more retail investors without hundreds or thousands to invest at one time the ability to buy these stocks, provided they don't have brokerage accounts that already offer fractional share buying.
The stocks of Alphabet, Amazon, and Tesla all moved up after their recent stock split announcements, and other top tech stocks that have split in recent years have generally gone on to outperform.
It's therefore possible a stock split announcement would help the following high-priced stocks, each of which is a leader in a growing industry. That means they should make it onto your buy or watch list today.
NASDAQ: SHOP
Key Data Points
Shopify
I have long thought the stock of Shopify (SHOP 0.26%), a darling of the e-commerce space, was a bit too expensive; as a consequence, I've missed out on one of the bigger market winners over the past five years. But with the stock's massive 61% pullback from its all-time highs, I'm growing more interested. And with a stock price in the high-$600-per-share range, it's another candidate for a stock split.
Management didn't help matters last quarter, as it guided for lower revenue growth in 2022 than the solid 57% growth figure seen in 2021, without giving specifics. Meanwhile, management also guided for much higher capital expenditures in 2022 through 2024, as it invests in its fulfillment network for its merchants. Shopify spent only $51 million in capital expenditures last year, but management now expects $200 million in capital expenditures in 2022, ramping to $1 billion over the course of 2023 and 2024.
With investors now focusing not just on growth but also profits and free cash flow, that's not a fashionable strategy for this market. However, founder and CEO Tobi Lütke has always had an eye on the long term, which has led to Shopify's success to date and what we preach at the Fool.
According to eMarketer, Shopify has captured about 10.3% of the U.S. e-commerce market, good for the second highest share next to outright leader Amazon. With its platform giving merchants the chance to sell directly to customers and therefore eschew powerful e-commerce marketplaces, there should be much more opportunity.
That's especially true since Shopify continues to innovate and roll out new products and services. Starting with software for online stores, Shopify has grown services for payments processing, the consumer-facing Shopify Pay button, point-of-sale devices, fulfillment, working capital loans to merchants, and now international expansion, both directly through Shopify and also through partners. Shopify just opened up the massive Chinese market to its customers through a partnership with JD.com, which could be a big deal for many merchants.
Shopify should remain a top growth stock as e-commerce takes up a greater percentage of retail sales throughout the world. 2022 may be a challenging year amid rising rates coming out of the pandemic, but for long-term investors, it could be an opportunity.
Lockheed Martin
Near $450 per share, defense leader Lockheed Martin (LMT +1.06%) could see its stock rise amid geopolitical tensions. With a share price that high, it may also be due for a split sometime in the future.
Although Lockheed has seen its shares rise as the Russia-Ukraine war broke out, shares are up only about 15% since then, which isn't nearly as much as some commodity stocks have risen. Furthermore, Lockheed trades at a reasonable valuation, at around 17.5 this year's earnings estimates and around 20 times management's projections for free cash flow.
But those earnings and cash flow estimates could go up, since they were given right before the Russian invasion of Ukraine. Lockheed, in a joint venture with partner Raytheon Technologies, makes the Javelin anti-tank missiles Ukraine is using against Russian forces. It's likely those sales will go up in 2022, and Lockheed's missiles and fire control segment was already the fastest-growing and highest-margin for the company. So increased Javelin sales could increase profits materially this year.
Image source: Getty Images.
In addition, NATO could look to secure more purchases of the F-35 fighter jet, which is the core product for Lockheed Martin's aeronautics unit, its largest segment. The F-35 has been the subject of some controversy due to its high costs, but the cap on F-35 production could be relaxed amid this "new normal" as demand for defense equipment increases.
The geopolitical tensions sparked by Russia's invasion of Ukraine could bring the world into a new era of higher defense spending. Lockheed Martin could take advantage, while also giving your portfolio a hedge against further global conflict -- all while paying you a growing 2.5% dividend at these prices.
Lam Research
Since semiconductors are currently in a severe shortage, and more semiconductor manufacturing is set to come online in the next few years, it's perplexing that top equipment maker Lam Research (LRCX +0.72%) is down so much to start the year. Trading at just 17 times earnings, a multiple well below most tech stocks, Lam looks like a bargain. And with a share price around $550 today, it's also another candidate for a stock split.
Lam is down amid geopolitical tensions and recession fears, which usually cause investors to sell semiconductor stocks. But this is a unique environment; we've never seen a semiconductor shortage of this magnitude for this long of a period, as digitization was turbocharged by the pandemic. Leading foundries have all announced large, multiyear spending plans that are unlikely to change much even if the economy slows down. That means great visibility for equipment makers like Lam.
While Lam did offer somewhat disappointing guidance on its recent earnings call, that was entirely due to supply constraints, which is a high-class problem. Given the long-term trends, Lam's industry-leading etch and deposition machines, which are especially relevant for producing the most advanced leading-edge chips, should remain in demand for years to come.
Meanwhile, Lam generates lots of cash flow, which it's using to repurchase stock at these low levels, while also paying out a 1.1% dividend that should grow every year. Lam is a strong buy here, and if management decides to split its stock, so much the better.
