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Move over, artificial intelligence (AI)! Wall Street has a new trend, and its name is stock split euphoria.
A stock split gives listed companies the ability to adjust their share price and the number of shares outstanding to the same extent. However, these changes are merely superficial and do not affect a company’s market capitalization or operating performance.
Since the start of 2024, 13 leading companies have announced and/or completed a stock split, including (all are forward stock splits unless otherwise noted):
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Walmart (NYSE:WMT): 3-for-1 stock split
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Nvidia (NASDAQ: NVDA): 10-for-1
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Amphenol (NYSE: APH): 2-for-1
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Chipotle Mexican Grill (NYSE: CMG): 50-for-1
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Mitsui (OTC: MITSY)(OTC: MITSF): 2-for-1
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Williams Sonoma (NYSE:WSM): 2-for-1
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Broadcom (NASDAQ:AVGO): 10-for-1
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MicroStrategy (NASDAQ:MSTR): 10-for-1
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Sirius XM Holdings (NASDAQ: SIRI): 1-for-10 reverse split
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Cintas (NASDAQ: CTAS): 4-for-1
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Super microcomputer (NASDAQ:SMCI): 10-for-1
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Lam Research (NASDAQ:LRCX): 10-for-1
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Sony group (NYSE: SONY): 5-for-1
Among these top-tier stock split stocks are two great, cheap companies that are begging to be bought in September, as well as two high-flyers that are perfectly priced and worth avoiding.
Stock split number 1 to buy by hand in September: Sirius XM Holdings
The first phenomenal stock split stock you can pick up with confidence this September is the only company of the 13 listed above that is about to execute a reverse stock split: satellite radio operator Sirius XM Holdings.
While most companies that execute a reverse split do so from a position of operational weakness, this is not the case with Sirius XM. The roughly 3.85 billion shares outstanding have kept the stock in the mid-single digits for a decade, which could be a deterrent for some institutional investors who find the low share price too risky. This reverse split will occur following the merger of Sirius XM with Liberty Media’s Sirius XM tracking stock. Liberty Sirius XM Group in just over a week, and will likely make the stock more attractive to big-money investors.
What investors get with Sirius XM are easily identifiable competitive advantages. For example, it is the only licensed satellite radio operator in the country, which gives it significant power over subscription prices.
Sirius XM also generates its revenue differently than terrestrial and online radio providers. Instead of relying almost exclusively on advertising, as traditional radio companies do, Sirius People are much less likely than companies to cancel their services during periods of economic turbulence. have to cut marketing budgets at the first sign of trouble. In other words, Sirius XM is better positioned to navigate uncertain economic climates.
A price-to-earnings (P/E) ratio of less than 10, coupled with a dividend yield of 3.4%, makes Sirius XM stock a bargain for opportunistic long-term investors.
Stock split #2 to buy with confidence this September: Sony Group
The other beautiful stock with a stock split begging to be bought this September is none other than Japan-based electronics giant Sony Group. Sony’s American Depositary Receipts (ADRs) will undergo a 5-for-1 split on October 8.
While it’s been four years since Sony introduced the PlayStation 5, and it’s completely normal for gaming console sales to decline late in the cycle, Sony has found a number of ways to boost one of its most important revenue channels.
For example, it is increasing the price of PlayStation 5 by about 19% in Japan to cope with challenging economic conditions. The company is also seeing strong growth in subscription sales with PlayStation Plus, which allows subscribers to play games with their friends and store game data in the cloud.
Although best known for gaming, Sony Group is a diverse company. It is one of the main suppliers of image sensors used in smartphones. As telecom companies upgrade their wireless networks to support faster download speeds, consumers and businesses have steadily traded in their old devices for new 5G-enabled devices. The 5G revolution is giving a healthy boost to Sony’s Imaging and Sensing Solutions segment.
A price-to-earnings ratio of 16 is a fair (if not cheap) price for a wonderful company that will likely launch a new gaming console in about two years.
The first stock split to avoid in September: Nvidia
However, not every stock with a stock split is worth buying. While Nvidia has been the hottest megacap stock in the world since early 2023 and its H100 graphics processing unit (GPU) is the preferred choice in AI-accelerated data centers, there are too many potential red flags to ignore.
One point I’ve been trying to make for months is that in thirty years there hasn’t been a next-big-thing innovation, technology, or trend that has escaped an early-stage bubble burst. This is a fancy way of saying that investors always overestimate how quickly new innovations/technologies are adopted by consumers and businesses.
The simple fact is that most companies don’t have a clear plan for their AI data center investments strong suggests we are witnessing the next in a long line of AI bubbles. If and when the AI bubble bursts, I expect Nvidia stock to be destroyed.
Competitive pressure can no longer be ignored. Advanced micro devices is ramping up production of its MI300X AI GPU, which is significantly cheaper than the H100, and doesn’t face the same supply chain constraints as Nvidia’s chips.
In addition to external competition, Nvidia could lose out on valuable data center space from its top customers. The four members of the “Magnificent Seven,” which account for about 40% of Nvidia’s net sales, are developing their own AI chips. Even as Nvidia’s H100 and Blackwell chips almost certainly hold on to their computing advantage, we’re witnessing a concerted effort by America’s most influential companies to reduce their dependence on Nvidia’s hardware.
Nvidia’s sequentially declining adjusted gross margin suggests we’ve witnessed the peak of the latest trend on Wall Street.
The second stock split stock to shy away from in September: MicroStrategy
The other stock split of the 13 worth avoiding in September is AI-inspired business analytics software company MicroStrategy.
Although MicroStrategy is technically a software company, almost its entire market cap of $27.2 billion (at the time of writing on August 27) is derived from its Bitcoin (CRYPTO: BTC) it holds. As of July 31, MicroStrategy owned 226,500 Bitcoins, which is more than 1% of the total supply that will ever be mined. It also makes MicroStrategy the largest corporate holder of the world’s largest cryptocurrency.
There are many ways to bet on Bitcoin if you are a crypto optimist. However, buying MicroStrategy stock might be the worst possible way to do so. With Bitcoin trading at $59,338 per token, MicroStrategy’s Bitcoin portfolio is worth $13.44 billion at the time of writing. Still, the market cap of $27.2 billion (with a fair value estimate of the software segment of about $1 billion) implies a value of about $115,650 per token. Investors pay a 95% premium for their Bitcoin assets no point.
Another reason to avoid MicroStrategy has to do with the way the company finances its Bitcoin purchases. With minimal positive operating cash flow generated from the software segment, CEO Michael Saylor has overseen a number of convertible debt offerings to finance the Bitcoin acquisition. If Bitcoin were to enter a steep bear market, as it has happened a few times over the past decade, MicroStrategy could struggle to meet its debt obligations.
Finally, I am not convinced that Bitcoin is in any way superior in the crypto arena. Its scarcity is based on lines of computer code that can theoretically be changed by community consensus. Most importantly, Bitcoin’s payment network is not close to being the fastest or the cheapest. It is a first-mover network that has been surpassed by third-generation blockchain networks. MicroStrategy tying its future to Bitcoin seems like a mistake I would like to avoid.
Should You Invest $1,000 in Sirius XM Now?
Consider the following before purchasing shares in Sirius XM:
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Sean Williams has positions in Sirius XM. The Motley Fool holds positions in and recommends Advanced Micro Devices, Bitcoin, Chipotle Mexican Grill, Lam Research, Nvidia, Walmart, and Williams-Sonoma. The Motley Fool recommends Broadcom and Cintas and recommends the following options: Short September 2024 puts $52 on Chipotle Mexican Grill. The Motley Fool has one disclosure policy.
2 Beautiful Stock-Split Stocks to Hand Buy in September, and 2 Priced for Perfection and Worth Avoiding was originally published by The Motley Fool