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After stock splits for Alphabet and Amazon, here's who might be next Stock splits typically have led to oversized returns, says Bank of America Jarek Kilian/Shutterstock
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tap here to see other videos from our team. Try refreshing your browser, or After stock splits for Alphabet and Amazon, here's who might be next Back to video Whether you cut a pie into 10 pieces or 100 pieces, it shouldn’t affect how much the pie is worth. But in the stock market, a stock split — which is essentially cutting shares into smaller pieces — can have some meaningful consequences. According to Bank of America, S&P 500 companies that announced stock splits since 1980 have returned an average of 25.4 per cent over the following 12 months, versus the S&P 500’s average return of nine per cent over the same period. In fact, the bank says that after a split is announced, these stocks have also outperformed the benchmark index in the three- and six-month periods as well. “Underlying strength in the company is a primary driver of elevated prices,” Bank of America analysts wrote in a note to investors last week.
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Article content “Once the split is executed, investors who have wanted to gain or increase exposure may start to rush for the chance to buy.” 2 stock splits made headlines so far in 2022 On Feb. 2, Google parent company Alphabet announced a 20-for-1 stock split alongside its latest earnings report. The stock rose 7.5 per cent in the following trading session. Amazon announced a 20-for-1 stock split and a US$10 billion stock buyback plan on March 9. Shares of the e-commerce giant climbed 5.4 per cent the next day. By splitting a share into smaller pieces, each piece will have a lower price, meaning it could draw more interest from retail investors. However, it doesn’t change the company’s underlying fundamentals. That said, amid the broad market’s sell-off and today’s geopolitical crisis, stock splits from quality companies might be one of the few things that can cheer up investors in the volatile 2022.
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Article content And more companies could follow suit. Bank of America analysts identified several S&P 500 companies with high share prices. Here’s a look at three that are particularly attractive to the bank. And if you’re interested in picking up any of these stocks, consider doing it through a new trading platform that lets you buy fractions of pricey shares. Booking Holdings (BKNG) Among the industries impacted 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, tumbled in early 2020. While the stock then climbed out of the doldrums, it’s far from smooth sailing. Year to date, BKNG is down 19 per cent. It’s not difficult to see why investors are cautious. Booking Holdings operates six primary brands: Booking.com, Priceline, Agoda, Rentalcars.com, Kayak and OpenTable. While the global economy has largely reopened, the unknown scope and length of the pandemic may continue to impact the demand for travel products.
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Article content Still, the company’s business has come a long way from the early days of the pandemic. In 2021, Booking Holdings’ gross travel bookings totalled US$76.6 billion, representing a 116 per cent increase from 2020. Meanwhile, total revenue rose 61 per cent to US$11 billion. Right now, Booking Holdings trades at around US$1,990 per share, making it one of the higher-priced stocks in the market. Bank of America has a “buy” rating on BKNG and a price target of US$3,100 — roughly 56 per cent above the current levels. ServiceNow (NOW) Cloud software provider ServiceNow has served long-term investors quite well: Shares are up more than 460 per cent over the past five years. The platform helps enterprise customers automate their IT tasks and workflow.
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Article content The company has built a recurring business model. In Q4 of 2021, subscription revenue made up 94 per cent of its total revenue. And it’s not standing still. In Q4, subscription revenue surged 29 per cent year-over-year to US$1.52 billion. Total revenue came in at US$1.61 billion, also up 29 per cent. Management sees strong growth momentum going forward. For 2022, the company expects ServiceNow’s subscription revenue to rise another 28 per cent year over year on a constant currency basis. The stock, however, is not immune to the recent sell-off in growth-oriented tech names. Year to date, NOW shares slipped 20 per cent to around US$500 apiece. Bank of America sees a rebound on the horizon as it has a “buy” rating on ServiceNow and a price target of US$680, implying a potential upside of 36 per cent.
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Article content TransDigm Group (TDG) TransDigm is an aerospace manufacturing company that makes components for both commercial and military aircraft. It has a wide range of product offerings, from mechanical/electro-mechanical actuators to cargo loading, handling and delivery systems. While the company doesn’t make headlines often, it deserves investor attention for a very simple reason: Around 80 per cent of TransDigm’s sales come from products for which it is the sole source supplier. This gives the company significant pricing power. In Q4 of 2021, TransDigm generated US$1.19 billion in net sales, representing an eight per cent increase year-over-year. Adjusted earnings per share improved 52 per cent from a year ago to US$3.
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Article content Shares are down 3.6 per cent in 2022 to US$618 apiece. To put that in perspective, the S&P 500 fell 13 per cent year to date. Bank of America has a “buy” rating on TransDigm. With a price target of US$790, the bank sees around 28 per cent upside in the company. But if you’re looking to invest outside of stocks altogether, consider fine art. Blue-chip art is known to have almost no correlation with the stock market, making it an ideal alternative investment, which is now available to everyday investors through a new trading app. This article was created by Wise Publishing. Wise is devoted to providing information that helps readers navigate the complex landscape of personal finance. Wise only partners with brands it trusts and believes may be helpful to the reader. This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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