Understanding Stock Splits
A stock split is an event that allows a publicly traded company to adjust its share price and outstanding share count without affecting its market capitalization or performance. It is a cosmetic change that can make a company’s shares more affordable for everyday investors (forward stock split) or ensure continued listing on major stock exchanges (reverse stock split). While some companies have thrived after a reverse stock split, most investors are interested in high-growth companies implementing forward splits.
The outperformance of certain stock-split stocks has not gone unnoticed by Wall Street’s smartest and most successful money managers. Based on the latest Form 13F filings with the Securities and Exchange Commission, billionaires have heavily invested in three stock-split stocks for the future.
Amazon: A Compelling Investment
One stock that warrants attention is Amazon, primarily due to its rapidly increasing operating cash flow. While the company is renowned for its leading online marketplace, it’s the ancillary operations that investors are focusing on. Amazon Web Services (AWS) is a significant driver of the company’s success. As one of the world’s largest enterprise cloud services providers, AWS contributes a substantial portion of Amazon’s operating income.
Additionally, Amazon’s website attracts over 2 billion visitors each month, making it an attractive platform for merchants and bolstering its ad-pricing power. Despite its perceived high valuation, shares are relatively cheaper when considering forward-year cash flow, which better reflects Amazon’s reinvestment of operating cash flow into its business.
Alphabet’s Dominance and Growth Potential
Alphabet, the parent company of Google, boasts an almost unassailable moat. Google’s internet search engine holds an impressive 92% global market share, a position it has maintained for over eight years. This dominance translates into substantial operating cash flow and remarkable ad-pricing power.
Billionaires are also drawn to Alphabet’s cloud infrastructure segment, Google Cloud, which has secured a 10% share of the global cloud infrastructure service market. This segment signifies a potential future driver of cash flow for the company.
Tesla: The Leading Electric Vehicle Manufacturer
Billionaires are also flocking to Tesla, North America’s leading electric vehicle (EV) manufacturer. Tesla’s recent launch of the Cybertruck and the potential conversion of deposits into actual orders have piqued investor interest. Furthermore, Tesla is approaching its fourth consecutive year of profitability, a notable achievement in the EV industry where competitors struggle financially.
However, Tesla faces challenges for the future. Multiple price cuts for its vehicle models coupled with rising inventory levels suggest a potential demand problem. Elon Musk, the company’s CEO, has attracted scrutiny from regulators and has made promises regarding innovations and products that have not materialized.
The appeal of stock-split stocks to investors, particularly billionaires, cannot be overstated. Amazon, Alphabet, and Tesla are among the companies attracting significant attention due to their substantial growth potential, dominant market positions, and promising financial performance. While uncertainties and risks remain, these stocks continue to captivate Wall Street, making them worth considering for investors looking for stable and profitable opportunities.