With major corporations, including Netflix, recently announcing stock splits, many on Wall Street are already anticipating the next prominent company to do the same. Stock splits are often a sign that a company is performing well and has a strong outlook. That's why, although they don't change the fundamentals of a business, stock splits are a hot topic for investors. One way to pick the corporations most likely to be in line for that is to look at their share prices.
However, some companies are unlikely to resort to stock splits, no matter how expensive their shares are. Two examples along those lines are Berkshire Hathaway (BRK.A 0.23%) (BRK.B 0.13%) and Booking Holdings (BKNG +0.76%). Let's see why these stocks likely won't split anytime soon, and why investors should consider buying them anyway.
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1. Berkshire Hathaway
Berkshire Hathaway's Class A shares are trading at an eye-popping $761,800 as of this writing. Once a stock becomes that expensive, it's probably a good bet that the company has no intention of doing a split. But for what it's worth, Warren Buffett, the longtime chief executive officer of Berkshire Hathaway, has repeatedly said he is not into stock splits. A low stock price attracts traders seeking to profit from it in the short run, which increases volatility.
Buffett wants to attract investors with a long-term mindset, those willing to hold Berkshire Hathaway's shares for many years, as he said in an annual meeting some three decades ago. The Class A share price is a significant hurdle for short-term traders. So, investors shouldn't expect a Class A stock split anytime soon -- perhaps ever.
NYSE: BRK.A
Key Data Points
True, Class B shares, introduced in 1996, split in 2010.Even so, at their current price of $508 and given Buffett's philosophy, they are unlikely to split, even as the Oracle of Omaha retires as head of the company. After all, he has trained the next generation of Berkshire Hathaway leaders for a long time. That's a key reason the stock remains a buy. The next CEO, Greg Abel, has been with the company for more than two decades, has risen through the ranks, and is now vice president of the company's non-insurance operations.
Many other leaders fit a similar profile. Buffett's investing lieutenants, Todd Combs and Ted Weschler, have made lucrative trades for the conglomerate, including the initial purchases of Apple shares, a company that has crushed the market since Berkshire Hathaway bought it and it has been the company's largest holding for a while now. Berkshire Hathaway is sitting on a strong foundation, with a diversified pool of subsidiaries, a large portfolio of excellent stocks, and billions in cash.
Some might doubt Berkshire Hathaway's leadership, as the leader who made it what it is will no longer be at the helm, but the stock remains a strong buy for long-term investors. Opting for Class B or fractional shares is a good idea here.
2. Booking Holdings
Booking Holdings, a leading travel accommodations company, has a share price of about $5,100. It has conducted one stock split before, back in 2003. However, that was a reverse stock split, a move that decreases the share count and increases the stock price. Reverse splits usually mean that a corporation isn't doing well and is resorting to this move to boost its share price and avoid being kicked out of major stock market indexes.
Now that its share price is more than $5,000, though, is a forward split forthcoming? Probably not. In responding to a question about stock splits and the fact that some investors might be scared off by the high price, CEO Glenn Fogel said: "I don't think I want that kind of investor." He later clarified that he wasn't completely ruling out a split. But these comments certainly don't make one likely for the company.
NASDAQ: BKNG
Key Data Points
No matter, Booking Holdings is an attractive stock to buy. Here are four reasons. First, the company continues to post strong financial results. Third-quarter revenue jumped 13% year over year to $9 billion, while net income rose 9% from a year earlier to $2.7 billion. Booking Holdings' gross bookings also increased by a healthy 14% year over year to $49.7 billion.
Second, the company has a strong competitive advantage thanks to network effects. Booking Holdings is a leading platform for flights, hotels, activities, and car rentals. The deeper its ecosystem gets, the more attractive it is to consumers and vendors. Third, Booking Holdings should profit from long-term tailwinds, including increased travel demand driven by an expanding middle class and growing consumer discretionary spending. It could also benefit from improving its platform through artificial intelligence-powered initiatives.
Lastly, the company has a robust stock buyback program and recently initiated a dividend, so its priorities do include returning capital to shareholders. That's why, whether it splits its stock, Booking Holdings is a buy. Here, too, it might be best to opt for fractional shares.
