Whether you slice a pie into 10 pieces or 100 pieces, it should not affect the value of the pie. But in the stock market, the stock split – which cuts shares into smaller pieces – can have some significant consequences.
According to Bank of America, S&P 500 companies that have announced stock splits since 1980 returned an average of 25.4% over the next 12 months, compared to the S&P 500’s average return of 9% over the same period. .
In fact, the bank said that after the split was announced, these stocks also exceeded the benchmark index in the three- and six -month period as well.
“The underlying strength in the company is a major driver of high prices,” Bank of America analysts wrote in a note to investors earlier this year.
“Once the split is executed, investors who want to gain or increase exposure can start to rush for the opportunity to buy.”
2 stock splits have been the headlines so far in 2022
In Feb. 2, Google’s parent company Alphabet announced a 20-for-1 stock split along with its latest earnings report. The stock rose 7.5% in the following trading session.
Amazon announced a 20-for-1 stock split and a $ 10 billion stock buyback plan in March. 9. Shares of the e-commerce giant climbed 5.4% the next day.
By dividing a portion into smaller pieces, each piece will have a lower price, meaning it can get more interest from retail investors. However, this does not change the company’s core fundamentals.
That said, amid widespread market selling and today’s geopolitical crisis, stock splits from high-quality companies could be one of the few things that will make investors happy in the volatile 2022.
And more companies can follow. Bank of America analysts identified several S&P 500 companies with high share prices. Here’s a look at three particularly attractive banks:
Booking Holdings (BKNG)
In the industries affected by the COVID-19 pandemic, travel took one of the most serious hits.
Shares of Booking Holdings, one of the leading providers of online travel services, fell in early 2020. As the stock gradually disappeared, it was far from smooth sailing. Year to date, BKNG has dropped by 5%.
It’s not hard to see why investors are cautious. Booking Holdings operates six major brands: Booking.com, Priceline, Agoda, Rentalcars.com, Kayak and OpenTable. As the global economy has almost reopened, the unknown scope and length of the pandemic could continue to affect demand for travel products.
However, the company’s business has come a long way since the early days of the pandemic. In 2021, Booking Holdings ’total travel bookings reached $ 76.6 billion, representing a 116% increase from 2020. Meanwhile, total revenue increased 61% to $ 11.0 billion.
Right now, Booking Holdings trades at approximately $ 2,339 per share, making it one of the stocks with the highest market price.
Bank of America has a “buy” rating on BKNG and a price target of $ 3,100-approximately 33% above current levels.
ServiceNow (NOW)
Cloud software provider ServiceNow has served long -term investors well: Shares have risen more than 370% over the past five years.
The platform helps enterprise customers automate their IT tasks and workflows.
The company has developed an iterative business model. In Q1, subscription revenue accounted for 95% of its total revenue.
And it doesn’t stand still. In Q1, subscription revenue rose 26% year-over-year to $ 1.63 billion. Total revenue reached $ 1.72 billion, up 27%.
Management sees strong growth momentum. For the full year 2022, the company expects ServiceNow subscription revenue to increase by 28.5% annually on a consistent monetary basis.
The stock, however, is not immune to recent sales in growth -oriented technology names. Year to date, NOW shares have dropped 21% to approximately $ 492 per piece.
Bank of America sees a rebound on the horizon as it has a “buy” rating on ServiceNow and a target price of $ 680, indicating a potential increase of 38%.
TransDigm Group (TDG)
TransDigm is an aerospace manufacturing company that makes parts for both commercial and military aircraft.
It has a wide range of product offerings, from mechanical/electro-mechanical actuators and controls to ignition systems and machine technology to loading, handling, and transmission systems. cargo.
Although the company doesn’t often make headlines, it deserves an investor’s attention for a very simple reason: About 80% of TransDigm’s sales come from products for which it’s the sole source supplier. This gives the company significant pricing power.
In the most recent fiscal quarter, TransDigm generated $ 1.33 billion in net sales, representing an 11% increase per year. Adjusted earnings per share improved 50% from a year ago to $ 3.86.
The shares dropped 4% in 2022 to $ 615.60 each. To put that in perspective, the S&P 500 has fallen 14% year to date.
Bank of America has a “buy” rating on TransDigm. At a target price of $ 790, the bank sees around a 28% increase in the company.
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