After spending much of last year headed in the wrong direction, Wall Street turned the tables in 2023, with many stocks making up lost ground. Each of the major market indexes climbed at least 20% from their respective bottoms, though they have since given back some of those gains. Some market enthusiasts continued to herald the dawn of the next bull market, but given the current weakness, others are waiting for the market indexes to achieve new highs -- just to be sure.
While this was in marked contrast to 2022, some investors continue to draw inspiration from stocks that split their shares over the past few years. While stock splits don't change the underlying value of the company in question, they are historically preceded by a period of strong financial and stock performance, leading them to split their shares.
A number of high-profile companies have enacted stock splits over the past couple of years, including:
- Nvidia (NVDA 6.18%) instituted a 4-for-1 split, payable July 20, 2021.
- Amazon completed a 20-for-1 split, payable June 3, 2022.
- DexCom (DXCM -9.90%) finished a 4-for-1 split, payable June 10, 2022.
- Shopify executed a 10-for-1 split, payable June 28, 2022.
- Alphabet 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.
- Monster Beverage decreed a 2-for-1 split, payable March 27, 2023.
While the upward trend of the market this year has lifted many companies, not all stocks have the same prospects. Here are two stock-split stocks investors should currently be buying hand over fist, according to Wall Street.
Image source: Getty Images.
Stock-split buy No. 1: Nvidia has 40% implied upside
Investors might be surprised to find Nvidia at the top of this list, particularly given its gains of roughly 200% so far this year and 11,000% over the past decade. The generative AI gold rush -- largely powered by Nvidia's cutting-edge processors -- and the resulting spike in demand has sent the stock soaring this year. Businesses have been scrambling to integrate these productivity-enhancing algorithms, which has been a boon to Nvidia.
The company's results paint a vivid picture. For its fiscal 2024 second quarter (ended July 30), Nvidia generated record revenue of $13.5 billion, up 101% year over year, while its diluted earnings per share (EPS) of $2.48 soared 854%.
CEO Jensen Huang left no doubt as to the catalyst, saying, "The race is on to adopt generative AI." Nvidia is anticipating another record in Q3, forecasting all-time high revenue of $16 billion.
Wall Street is equally optimistic when it comes to Nvidia's future prospects. Analysts' consensus estimates are calling for full fiscal year revenue of $54.6 billion -- more than double its record high set in fiscal 2022. As a result, Wall Street's average price target on the stock is $628, implying additional upside of 40% over the coming 12 to 18 months.
However, some analysts are much more bullish on the stock. Rosenblatt analyst Hans Mosesmann has a price target of $1,100 -- the highest among his Wall Street peers -- which suggests Nvidia stock could soar as much as 123% from its current price.
Bears will quickly point to Nvidia's sticker price, as the stock is currently selling for 40 times forward earnings and 13 times forward sales. That said, the accelerating adoption of generative AI and the ongoing digital transformation could act as strong tailwinds for years to come.
My money is on Nvidia.
Stock-split buy No. 2: DexCom has 51% implied upside
Over the past decade, DexCom delivered returns of more than 1,170% for patient investors. After outpacing the broader market for much of the year, DexCom has fallen on hard times, with its stock down 19% thus far in 2023. Despite delivering solid financial and operating results, the continuous glucose monitoring (CGM) specialist has fallen victim to the latest weight loss craze.
Novo Nordisk's Ozempic and Eli Lilly's Mounjaro, part of a group of glucagon-like peptide-1 (GLP-1) agonist medications, produced dramatic weight loss results, leading some to believe that obesity -- and by extension, the need for CGM -- will diminish over time.
However, a wave of reported side effects of the drugs -- which includes reports of blocked intestines, persistent vomiting, and stomach paralysis -- are beginning to have a chilling effect on demand for these medications. The U.S. Food and Drug Administration (FDA) has even gotten involved, updating the warning labels for these GLP-1 drugs. However, DexCom reports that CGM use actually increases among patients taking GLP-1 medications, which should help put these concerns to rest.
Investor fears aside, DexCom's results paint a different picture. For the second quarter, the company delivered revenue that grew 25% year over year to $871 million, while EPS of $0.28 surged 133%. Management is guiding for full-year revenue growth of 21% at the midpoint of its guidance, and the company has a history of issuing conservative forecasts.
Wall Street is still bullish for DexCom. Analysts' consensus estimates are calling for full fiscal year revenue of $3.54 billion, an increase of 22%. As a result, Wall Street's average price target on the stock is $143, implying additional upside of 51% over the next year or so.
Some analysts are even more enthusiastic regarding DexCom's prospects. Piper Sandler analyst Matt O'Brien maintains a price target of $160 -- the highest on Wall Street -- which suggests DexCom stock could jump as much as 69% from its current price.
Given the available evidence, it appears investors have overreacted by selling off DexCom stock. The company continues the rollout of its latest CGM device -- the G7 -- which has been shown to help patients with diabetes stay on track with their goals. Furthermore, DexCom continues to gain share in international markets.
Given the multiple drivers and continuing product innovation, investors would do well to buy DexCom stock before the inevitable rebound to come.
