Fools know the value of a stock split: zero. It's a non-event. Instead of a $20 bill in your wallet, you now have two $10 bills. So if they mean nothing, why 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 ones:
- To make the stock look cheap.
- To increase liquidity.
- To meet stock-exchange listing requirements.
- To express a bullish management sentiment.
- ardless of the reason, though, markets tend to view splits as positive events, and a company's shares can get a short-term boost from the news. But if the company isn't a good long-term business, it doesn't matter if its shares split, or whether you buy them before or after the split.
That's why we pair up stock-split announcements with the sentiments of more than 180,000 members of Motley Fool CAPS. If the best stock pickers think a company's long-term potential is outstanding, and the company is giving off bullish signals, maybe then investors should take notice.
Here are two stocks that recently split their shares or announced their intention to do so:
|
Stock |
CAPS Rating (out of 5) |
Split Ratio |
Pay Date |
Current Share Price |
|---|---|---|---|---|
|
Cabot Oil & Gas (NYSE: COG) |
** |
2:1 |
1/25/12 |
$69.62 |
|
TJX Companies (NYSE: TJX) |
*** |
2:1 |
2/2/12 |
$65.54 |
Source: The Online Investor.
Don't blindly buy into a split -- you still need to do some research. Use the announcement as a jumping-off point to determine whether its shares are two or three times as good as before.
Hedging your bets
After being the best performing stock in 2011, Cabot Oil & Gas is rewarding shareholders yet again by splitting its shares and raising its dividend 33% to $0.16 per share. That might be money investors want to take and run with. It's going to be hard to repeat that performance this year.
Natural gas prices are plummeting, down to $2.70 per Mcf, which caused Cabot's stock to drop by 10% yesterday. It also brought down peers Southwestern Energy (NYSE: SWN) and Range Resources (NYSE: RRC), which also concentrate heavily on the natural gas side. The downward pressure is going to hamper Cabot's ability to generate the kinds of cash flows it did last year.
Cabot admitted as much when clarifying the prices achieved for its Marcellus gas. It noted that between the market price and its hedged price of over $5 per Mcf, it was able to realize $3.90 per Mcf in the fourth quarter. January's prices are down because the market price keeps tumbling, but the company says it will do its best to balance growth and cash flows with rates of return.
With 91% of the CAPS members rating Cabot to outperform the market, they apparently believe it will do all right for itself even if it's not the top stock in 2012. Add the oil and gas exploration company to your Watchlist to keep abreast of developments, and add your opinion of the split and other moves on the Cabot Oil & Gas CAPS page.
To the maxx
Retailer TJX Companies is becoming a maxxinista where it concerns shareholder returns. The parent of T.J. Maxx, Marshall's, and HomeGoods might not have been the best performer last year, but a 45% gain over the last 12 months is not too shabby, particularly considering the frugal shoppers who frequent its stores.
December's numbers were emblematic of the kind of year the retailer had, with sales rising 8% and comps jumping by a like amount compared to analyst expectations of just 2.6%. It indicates that consumers are still looking for a good deal on clothes and home goods. They could go to a big-box store and get lower prices, but there's a certain cachet to T.J. Maxx or Marshall's that the big-box stores can't replicate.
That seems to be the thinking behind CAPS member DeeFool33's rating it to outperform the market indexes.
Good clothes & home items at good prices, many locations, credit card with rewards. Don't think this stock will rise very fast anymore but hard to go wrong holding this for years.
Essentially, slow and steady wins the race. Tell us in the comments section below or on the TJX Companies CAPS page why it should be a part of your portfolio, and add it to your Watchlist to see if it maxes out new growth for investors.
Split the difference
Head over to the completely free CAPS service to let us hear what you've got to say about these or any other stocks that you think we should split hairs over. Then check out this special report from The Motley Fool, which found two companies that don't need foundation and makeup to change the face of retail. "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail" highlights two more retailers actually growing revenue despite difficult times.
