Athletic clothing maker Under Armour (UA) made big headlines Monday, announcing that its board had approved a 2-for-1 stock split. The news prompted a jump of 2% in UA stock, which helped shares close at a new all-time high of $119.67.
The stock split announcement was the second such move by the Under Armour board since the company began its publicly traded life in November 2005. And if history is any harbinger of things to come, UA stock is in really good shape — since the first stock split in July 2012, shares are up more than 150%.
Monday’s event reminds me of the halcyon days of trading in the late-1990s tech bull. I was working at a small private hedge fund then, and one of the tools we used to juice up gains was something called a stock split alert service. In a sign of the times, we used to receive a page (yes, via a pager) when a company had announced a stock split. This was important information, because during that dream-like bull period, a stock usually was good for a 2% to 5% pop on news of the split.
I always thought this was strange, because from a pure math standpoint you don’t gain anything with a split. If you have a stock trading at $100 and you own 100 shares, you have $10,000 worth of that stock. After a 2-for-1 split, you’d have 200 shares, sure, but they’d only be worth $50 each, and you’d still have the same $10,000 in stock.
Yet the curious logic of investing applies here, and in this case, the lower share price actually does attract more investors (especially individuals), and more capital. The reason why is that psychologically, retail investors tend to think they are getting more for their money if the share price is low. The willingness to buy a stock, and more shares of a stock, when it trades at a lower nominal price prompts some buying, and that prompts a rising share price.
The split announcement by Under Armour caused me to speculate on what other companies might be ripe for a 2-for-1 split, and would hence benefit from a headline trading price set about half of where it trades at today.
The ideal candidates would be 1) Big, well-known names that consumers have embraced, 2) High-profile stocks individual investors feel comfortable trading, and 3) stocks that trade above $100 a share.
So, if you are making up your personal watch list, then here are six stocks that fit that above criteria.
- Amazon.com (AMZN), $375: The online seller of everything has seen its stock split before, but not since the aforementioned late-1990s bull. Amazon shares split 2-for-1 in June 1998, and then twice in 1999 — a 3-for-1 split in January when the stock traded at $354, and a 2-for-1 split in September. With shares near $375, we could be likely to see a new split soon.
- Apple (AAPL), $528: Apple is no stranger to splits, either, having pulled off 2-for-1s in 1987, 2000 and 2005. And while the tech giant has recovered from its precipitous drop from $700 between late 2012 and mid-2013, AAPL has been languishing for months in the low $500s. A new iPhone might do the trick, but a stock split would almost certainly reinvigorate retail investors as well.
- BlackRock (BLK), $299: The private equity stalwart knows how to invest and make money for clients, but now that its shares are near $300, is it time to split? One thing we know about financial firms like BlackRock is that if there is value for shareholders with a split, then that’s the move they’ll make.
- Chipotle Mexican Grill (CMG), $591: Shares of the fast-food slinger have been a darling of Wall Street’s fast money for some time, and over the past five years the stock has soared 842%! Yet that gain could likely be built on further with a 3-for-1 split of the shares, which would still leave the stock at just under $200.
- Priceline.com (PCLN), $1,301: The online travel site has split its stock before, but in reverse, at 1-for-6 in 2003. More recently, PCLN shares have been an extreme high-flier over the past five years, having soared some 1,550%. And with shares now trading around $1,300, this example of an online commerce winner would be more than able to handle a 3-for-1 or more split and still keep gaining altitude.
- Tesla Motors (TSLA), $237: If Elon Musk can drive TSLA stock more than 1,100% since June 2010, why would he split the shares? Simple, because more people would move to grab a stake in this game-changing company, and that would smack down the haters who think Tesla shares are unsustainable.
Each of these companies would likely get a trading boost, and possibly a sustained boost, by seeing their respective share prices come down by at least half. In the case of Priceline, it could easily undertake a 3-for-1 split and still have a relatively high share price.
Finally, one company that isn’t on my list is Google (GOOG), but only because the Internet search giant already announced it will undergo a split later in the year.
As of this writing, Jim Woods was long AMZN, AAPL and TSLA.