After spending much of last year in the dumps, Wall Street handed investors a welcome surprise in 2023. Each of the major market indexes has climbed at least 20% from its respective bottom, causing some market enthusiasts to call the dawn of the next bull market -- at least by that measure.
While this is a very different environment than 2022, some investors are banking on the group of stocks that split their shares last year. While stock splits don't change the underlying value of the investment, they are usually preceded by years of strong performance, leading them to split their shares. The stock-split class of 2022 included:
- Amazon (AMZN -0.41%) completed a 20-for-1 split payable June 3, 2022.
- DexCom finished a 4-for-1 split payable June 10, 2022.
- Shopify executed a 10-for-1 split payable June 28, 2022.
- Alphabet (GOOGL 0.49%) (GOOG 0.46%) decreed a 20-for-1 split payable July 15, 2022.
- Tesla implemented a 3-for-1 split payable Aug. 24, 2022.
- Palo Alto Networks enacted a 3-for-1 split payable Sept. 13, 2022.
While the general market exuberance has lifted many companies, not all growth stocks participated equally, leaving savvy investors with bargains to be had. Here are two stock-split stocks investors should buy hand over fist and never sell.
Image source: Getty Images.
Stock-split buy No. 1: Alphabet
When Alphabet split its shares last year, it did so with good reason. In the 10 years leading up to its split, the search leader's share price grew by nearly 800%. Helping fuel the rise was a blockbuster financial performance that grew revenue by 461% and net income that soared 744%.
What drove those stunning financial gains? In a word: dominance.
Google remains the undisputed search leader, with a worldwide market share of 92%. In fact, over the past decade, its market share has never fallen below 88%, according to data provided by web traffic analytics provided StatCounter. The evidence suggests that Google has staying power.
The company's search dominance underpins Alphabet's industry-leading digital advertising business, which captured roughly 30% of worldwide internet ad revenue last year, according to data gathered by industry publication Digiday. The economic overhang that has dogged Google's adtech business appears to be lifting, which should boost growth, allowing the company to return to its former glory.
Another important ongoing growth driver is Alphabet's Google Cloud. The company is a member of the vaunted "big three" cloud infrastructure providers, with roughly 9% of the market, trailing just Amazon Web Services (AWS) and Microsoft Azure, with 30% and 26%, respectively. Perhaps as importantly, Google is the fastest-growing of the three, up 31% year over year in the second quarter, while AWS and Azure grew 12% and 26%, respectively, suggesting that Google has been stealing market share.
There's also a significant opportunity to capitalize on the latest developments in artificial intelligence (AI). Large language models have evolved, giving way to generative AI. Alphabet wasted no time integrating the latest AI functionality into its flagship products and services while also offering the technology to users of its Google Cloud.
Yet for all this opportunity, Alphabet is selling for a song. The stock currently trades at 23 times next year's earnings, cheaper than the S&P 500's price-to-earnings (P/E) ratio, which now stands at 25. Bargains like this don't come around very often, and investors should take advantage before it's gone.
Stock-split buy No. 2: Amazon
When Amazon split its shares last year, it also had a compelling history. Between 2011 and 2021, the e-commerce pioneer's stock price grew by more than 1,450%. Helping stoke its results was an impressive financial performance, as revenue increased 971% and net income surged 205%.
Amazon also has its fair share of dominance, which helped fuel its meteoric rise.
The company is the undisputed leader in e-commerce, capturing an estimated 38% of the U.S. market -- more than its next 15 competitors combined -- according to data provided by Statista. Amazon is also the second-largest retailer in the world, according to Deloitte's Global Powers of Retailing Report 2022.
Amazon is also the undisputed leader in cloud infrastructure services -- as noted above -- with 30% of the market. While its growth has slowed, Amazon continues to dominate the market and is quickly responding to changes in the landscape with cloud-based AI products of its own.
It's also worth noting that while Amazon is a recent convert to digital advertising, the company has quickly risen through the ranks to become a force to be reckoned with. Amazon is currently the third-largest online advertiser in the U.S. and fourth worldwide. Beyond the digital real estate available on its e-commerce website, Amazon is expanding its presence via Freevee, the company's ad-supported streaming video channel, and IMDb -- its internet movie database site.
Despite its dominance and the opportunities that remain, Amazon is also remarkably cheap. The stock is trading for roughly 2 times next year's sales, still near a 10-year low. It won't take long before Wall Street comes to its senses, so this sale won't last long. That's why investors should be buying Amazon hand over fist, with the intention of never selling.
