Fools know the value of a stock split: zero. It's a nonevent. Instead of a $20 bill in your wallet, you've now got two $10 bills. You're eating 12 smaller slices of your pizza, instead of six larger ones.
So if stock splits mean nothing, why do companies do them? There are a few reasons, none of which has anything to do with whether the stock is a good investment. Here are the usual motivations:
- To make the stock look cheap.
- To increase liquidity.
- To meet stock-exchange listing requirements.
- To express management's bullish sentiment.
Regardless of the reason, the market tends to view stock splits as positive events, and a company's shares can get a short-term boost from the news. But if the business isn't a good, long-term company, it doesn't matter if its shares split, or whether you buy them before or after.
A split decision
That's why we pair up stock-split announcements with the sentiments of the 70,000 investors at Motley Fool CAPS. Every day, professional and novice investors weigh the prospects of thousands of stocks, rating them between one and a maximum five stars. If the best stock pickers think a company's long-term performance is outstanding, and the company has announced the bullish signal to split its shares, maybe investors should take notice.
Then we dive in and see exactly what the CAPS community has to say about some of these companies. Here's a list of stocks that have recently announced splits.
|
Company |
Split |
Announcement Date |
Date Payable |
CAPS Rating (out of 5) |
|---|---|---|---|---|
|
Tsakos Energy Navigation (NYSE:TNP) |
2:1 |
11/5/2007 |
11/14/2007 |
**** |
|
LKQ (NASDAQ:LKQX) |
2:1 |
11/6/2007 |
12/4/2007 |
***** |
|
Foster Wheeler (NASDAQ:FWLT) |
2:1 |
11/7/2007 |
NA |
***** |
This is a pretty well-liked group of companies, each garnering a four- or five-star rating. The high ratings suggest that investors are just as confident about their prospects as management apparently is.
Wheeling its way forward
Engineering and construction firm Foster Wheeler has been enjoying the building boom engendered by the oil/gas/petrochemical industries, as have rivals Fluor (NYSE:FLR), Shaw Group (NYSE:SGR), and Washington Group (NYSE:WNG). Profits for Foster Wheeler's most recent quarter jumped 70% year over year.
Top-rated CAPS All-Star ZachGruver sees the financials of the company pushing its metrics ahead of the industry and market. There seems to be little holding back this firm in the current economic climate:
Foster Wheeler is a great company. It has a huge order backlog, with over 5.5 billion in unfilled orders. Between March '06 and March '07 Foster Wheeler added another 1.1 billion in new contracts. This massive contract growth is reflecting strongly in earnings estimates, with the 2007 eps est. at $5.40 and the 2008 eps est. at $6.54. Not only are current estimates an indication of strong future results, but Foster Wheeler has beaten earnings estimates in the last 3/4 quarters... Foster Wheeler also has great return on asset numbers, with the latest number being reported at approximately 11%. [I] think that Foster Wheeler will definitely beat the market.
Similarly, CAPS investor eslough notes that there are additional opportunities (like the 2008 Olympics) to, um, foster growth:
Foster Wheeler is a leading firm in the global infrastructure boom, with an order backlog of more than three years. The global shortage of qualified engineers will continue to propel this stock higher, as the 2008 Olympics in Beijing places China in competition for limited engineering resources world-wide.
Split the difference
How about you? Will investors wheel and deal for profits here? Get in the mix with Motley Fool CAPS, and share your opinions on these stock split stories with tens of thousands of your fellow investors.
