If you're putting your money to work on Wall Street, volatility is something you'll have to get used to. Prior to 2024, the iconic Dow Jones Industrial Average, broad-based S&P 500, and growth stock-powered Nasdaq Composite traded off bear and bull markets for four consecutive years.
When the going gets tough on Wall Street, professional and retail investors generally seek out the safety of industry-leading companies and perennial outperformers. While the FAANG stocks are a good example, investors have wisely gravitated to companies enacting stock splits over the last three years.
Image source: Getty Images.
Stock-split stocks take center stage
A stock split is a cosmetic event that allows a publicly traded company to alter its share price and outstanding share count by the same magnitude. I say "cosmetic" because stock splits have no impact on a company's market cap or operating performance.
Stock splits take two forms: forward splits and reverse splits. A forward stock split involves reducing a company's share price to make it more nominally affordable for investors who may not have access to fractional-share purchases with their broker. Meanwhile, reverse stock splits are designed to increase a public company's share price to ensure continued listing on a major stock exchange.
Most investors tend to pile into companies enacting forward splits -- and for good reason. These companies are typically firing on all cylinders from an operating standpoint and have handily out-innovated their competition. In many instances, companies undertaking forward stock splits have well-defined competitive advantages.
However, Wall Street's billionaire money managers have mixed views on what to expect from the 2024 class of stock-split stocks. Following the release of Form 13F filings, which details buying activity for institutional money managers during the first quarter, we can see that billionaires were eager to add to two stock-split stocks while heading to the exit with another.
Stock-split stock No. 1 that billionaire investors are buying hand over fist: Chipotle Mexican Grill
The first stock-split stock billionaires were happy to add to their respective funds during the March-ended quarter is fast-casual restaurant chain Chipotle Mexican Grill (CMG 3.26%). In March, Chipotle announced plans to conduct a 50-for-1 split that'll take effect before the opening bell on June 26, assuming it gets the green light from shareholders at the company's upcoming annual meeting.
During the first quarter, Chipotle had four billionaires who were enthusiastic buyers, including (total shares purchased in parentheses):
- Ken Griffin of Citadel Advisors (135,356 shares)
- John Overdeck and David Siegel of Two Sigma Investments (20,163 shares)
- Jeff Yass of Susquehanna International (9,381 shares)
Chipotle Mexican Grill has proved to be practically unstoppable since its January 2006 initial public offering. Just as grocery stores beefed up their margins by offering healthier and organic food options, Chipotle's management team quickly realized that consumers would pay a premium for higher-quality food. Chipotle has shunned freezers, uses only responsibly raised meats, and sources its vegetables locally when possible.
Arguably, even more important has been Chipotle's decision to limit the size of its menu. Keeping its menu rather small ensures that its staff can quickly prepare meals and keep in-store and drive-thru lines moving. A smaller menu also allows for more buzz when Chipotle introduces a new item.
Chipotle's innovation beyond the grill also deserves plenty of credit. Roughly six years ago, the company began introducing dedicated mobile-ordering drive-thru lanes, known as "Chipotlanes," at a few of its locations. The idea has since taken off. Chipotlanes were especially helpful during the COVID-19 pandemic and are responsible for creating an entirely new revenue stream for the company.
Despite trading at a nosebleed premium, shares of Chipotle Mexican Grill remain on the menu for select billionaire investors.
Stock-split stock No. 2 that billionaire money managers are buying hand over fist: Sony Group
The other stock-split stock prominent billionaire investors were gobbling up shares of during the March-ended quarter is Japan-based consumer electronics company Sony Group (SONY -1.44%). To be fair, Sony didn't announce its 5-for-1 forward split until well after the first quarter came to a close. The first split for Sony in 24 years is expected to take effect on Oct. 8 for shares listed in the U.S.
Although foreign-based businesses rarely garner as much interest from billionaire investors as U.S.-based companies, two billionaire asset managers were big buyers of Sony stock in the first quarter (total shares purchased in parentheses):
- Ken Fisher of Fisher Asset Management (457,754 shares)
- Jeff Yass of Susquehanna International (104,859 shares)
Fisher's purchase brought his fund's stake to more than 6.8 million shares of Sony. Meanwhile, Yass has increased Susquehanna's stake in the company by 829% since Dec. 31, 2023!
If you're wondering why the dynamic duo of Ken Fisher and Jeff Yass are so bullish on Sony, look no further than its higher-margin operating segments. Although PlayStation 5 console demand has waned a bit since being introduced in November 2020, PlayStation Plus revenue is ticking up. PlayStation Plus is a service that allows friends to play multiplayer games and gives gamers access to the cloud, where their gaming data can be stored. This high-margin service, which has multiple tiers, can be paid for monthly or annually.
Additionally, Sony is one of the world's leading providers of image sensors used in smartphones. The 5G revolution gave consumers and businesses every reason to trade in their devices for models that can take advantage of faster download speeds. With smartphone sales expected to grow in 2024, Sony's imaging and sensing solution sales should keep climbing.
Don't overlook Sony's recently announced share repurchase program, either. If the company maximizes its buyback program, it could retire close to 2.5% of its outstanding shares and provide a modest boost to its earnings per share (EPS).
Image source: Getty Images.
The stock-split stock billionaires sent to the chopping block: Walmart
However, not all stock-split stocks were on the shopping list for billionaire money managers during the March-ended quarter. Retail titan Walmart (WMT 0.59%), which completed a 3-for-1 stock split on Feb. 26, had four top-notch billionaires show it to the door, including (total shares sold in parentheses):
- Ken Griffin of Citadel Advisors (3,201,374 shares)
- Jeff Yass of Susquehanna International (1,540,745 shares)
- Steven Cohen of Point72 Asset Management (1,152,746 shares)
- Ray Dalio of Bridgewater Associates (745,275 shares)
One possible reason billionaires headed for the exit from Walmart during the first quarter is the likelihood that the U.S. economy will dip into a recession in the quarters to come. Though economic data remains relatively strong, a historic drop-off in the M2 money supply suggests trouble lies ahead. Retailers like Walmart could struggle if consumers hang on to more of their disposable income.
Another potential concern is Walmart's valuation. As of the closing bell on May 17, shares were trading at nearly 25 times the consensus EPS for 2025. This represents about a 6% premium to Walmart's average forward-year earnings multiple over the trailing-five-year period. To boot, the stock market is historically pricey and potentially due for a sizable pullback.
Despite these headwinds, Walmart continues to move its profit needle in the right direction by using size to its advantage. Buying products in bulk and undercutting local stores and grocery chains on price has been a winning formula for driving traffic into its stores for decades.
Nevertheless, Walmart is probably going to need a big uptick in high-margin Walmart+ membership purchases if it has any hope of sustaining a forward-earnings multiple of 25 over the short run.
