The pie price doesn’t change no matter how many times you split it. However, the situation is different in the stock market. A split means cutting the share into tiny pieces and can have some valuable impact.
According to the Bank of America, some of the S&P companies that split their stocks in the ’80s have returned up to 25.4% in the following year compared to the S&P 500’s average return of 9% over 12 months.
The bank adds that the stocks have outperformed the base index after a split in a 3-6 months period.
The analysts pointed out that; the “Underlying strength in the company is a primary driver of elevated prices,”
“Once the split is executed, investors who have wanted to gain or increase exposure may start to rush for the chance to buy.”
Top Splits in 2022
Early in the year, Alphabet (Google Parent Company) announced a 20:1 stock split along with its current earnings report. The stock climbed 7.5% in the stock trading season that followed.
Likewise, on March 9, 2022, Amazon announced a 20:1 stock split alongside a $10 billion stock buyback plan. As expected, the company’s shares rose 5.4% the following day.
A share split dramatically lowers the price of the individual pieces, thereby attracting attention from retail investors. However, the company’s fundamentals remain strong.
That being said, with a broader market sell-off as well as geographical crisis, splits from blue chips can generate interest from the trades amidst volatility in the market.
Without a doubt, other companies are expected to follow suit. The Bank of America analysts predict multiple S&P 500 companies with high valued share prices.
Top Three Companies Identified by the Bank of America.
1. Book Holdings (BKNG)
The travel industry took a hit from the COVID-19 pandemic. Booking Holdings is a top online services provider whose shares tumbled at the beginning of 2020.
Whereas the stock has finally slipped out of the doldrums, it still has a long way to go and reach pre-pandemic levels. The year-to-date returns show that the BKNG is down by 5%.
Of course, stock investors are a bit cautious towards this stock. Even though the global economy has reopened, it’s not known for how long the impact of the pandemic will continue affecting the demand for travel services.
Yet, the company’s gross travel stands at $76.6 billion, which is a 116% increase from 2020. On the same note, the revenues climbed by 61% to close at $11.0 billion.
Currently, the shares of Booking Holdings are trading at $2,339 per unit, making it a high-priced stock in the stock exchange market.
Bank of America puts a BUY rating on the share with a price target of $3,100, at least 33% above the current rate.
ServiceNow is a cloud service provider giant with an incredible number of long-term traders. The stock has surged by over 370% in a five-year stock trading season. The company enables institutional clients to automate workflow and IT projects. Additionally, the company uses a recurring business model.
In Quarter 1, the subscription revenue constituted 98% of its total revenue. Further, the subscription revenue rose by 26% year-over-year to close at $1.63 billion. Total revenue grew by 27% to close at $1.72 billion.
The management predicts a sustained growth momentum in the coming years.
The software company’s stock is not immune to the current sell-off in tech peers. Year-to-date returns show that the shares fell by 21% to trade at $492 per unit.
The Bank of America predicts a rebound soon and puts a BUY rating with a price target of $680. Therefore, the shares have the potential to turn the tables around and climb by 38%.
3. TransDigm Group (TDG)
TransDigm Group is an aerospace manufacturing firm that produces components for the military along with commercial aircraft.
The product line includes controls, ignition systems, cargo loading, engine technology, handling, delivery, and mechanical or electro-mechanical actuators.
Whereas the company rarely makes top headlines, investors have a reason to pay attention to its stocks. Up to 80% of the company’s sales are from products for which it’s a single-source supplier. Therefore it has monopolistic tendencies and pricing powers.
In the first quarter, the company generated up to $1.33 billion in net sales, an 11% increase year-over-year. Additionally, the adjusted EPS improved by 50% from the previous year to close $3.86.
Shares have fallen by 4% in 2022 to close at $615.60 per unit. To have everything in perspective, it’s essential to remember that the S&P 500 fell by 14% year-to-date.
Bank of America puts a BUY rating on TransDigm Group (TDG) and a price target of $790. Thus, the share price is predicted to grow by 28% in the coming months.
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