As one of history's most successful moneymen, investors look to Warren Buffett for guidance when it comes to stock picking and finances. Lately, investors have also been loving stock splits.
Breaking shares down to smaller units representing equivalent value doesn't do anything to change the intrinsic value of the underlying company, but smaller, pure-dollar prices can make stocks more attractive to a wider pool of investors. With activity among average traders having surged in recent years, stock splits can make shares more accessible and have led to big gains for some companies.
Read on for a look at two stocks in the Berkshire Hathaway portfolio that are on track to carry out splits soon, and that are worth investing in today.
Image source: The Motley Fool.
1. Amazon
Amazon (AMZN -1.64%) last carried out a stock split at the beginning of September 1999, and it's gone on to define multiple highly influential industries and deliver stellar performance since then.
AMZN data by YCharts
Because of its incredible gains, Amazon stock currently trades at roughly $2,788 per share -- a figure that makes it one of the highest-priced stocks on the market from a pure-dollar perspective. The company is on track to carry out a 20-for-1 stock split in June that will cut its price dramatically and make the the stock more accessible to average investors. But the upcoming move shouldn't be taken as an indication that shares are actually expensive at current prices.
In many ways, Amazon's business has never looked stronger, but the company's valuation has gotten caught up in the broader valuation pullback that's impacting growth-dependent stocks. The company's share price is down roughly 26% from the high it hit last July, and long-term investors will likely be able to score wins with the stock by taking advantage of the pullback.
The company's e-commerce business has faced challenging sales growth comparisons to periods of pandemic-elevated performance, but Amazon is continuing to make smart investments to maintain leadership in the space, and the overall online retail market still looks poised for huge growth over the long term. The tech giant's cloud computing segment is also on track to continue serving up strong, high-margin revenue growth, and initiatives in categories including digital advertising, artificial intelligence, and robotics should continue to strengthen the company and deliver strong performance for shareholders.
2. RH
RH (RH 1.32%) is a retail company that specializes in premium home furnishings, and it's been one of the best-performing stocks in the Berkshire Hathaway portfolio in recent years -- even after a significant valuation pullback. While the high-end retail company's revenue has grown at a solid clip over the last five years, its earnings growth across the stretch has been even more impressive.
RH Revenue (TTM) data by YCharts
RH's focus on the high-end market has allowed it to command strong margins, and it should be able to continue leveraging this advantage over the long term. However, the company formerly known as Restoration Hardware is now making some big investments in hopes of driving its next growth phases, and that means earnings performance could take a significant hit in the near term.
While the move to expand beyond its key U.S. geographic segment and grow business in the European market seems like a natural evolution, the company is also branching into the sale of fully furnished luxury homes and launching a luxury yacht that's available for charter. Investors don't appear to be thrilled with these developments.
Even after a big pullback, the company's stock still trades at roughly $344 per share, and management plans to carry out a 3-for-1 split in hopes of making shares more appealing and aiding the recruitment and retention of employee talent (lower-priced shares help the company better manage when determining stock options for employees and recruits).
RH now has a market capitalization of roughly $8.1 billion and is valued at approximately two times this year's expected sales and 13 times this year's expected earnings. It also has a strong balance sheet it can use for internal growth initiatives or deploy for acquisitions that can strengthen the business and help accelerate growth. RH's share price is now down roughly 55% from the high that it hit last summer, and the stock looks like a worthwhile buy.
