Looking for an easy way to make money fast? It’s hard to argue with the S&P 500 stock split. But the question is, who will do it next?
X
Bank of America is wasting no time looking for the next S&P 500 stock split. It is targeting S&P 500 stocks trading at $500/share. This group of divided candidates, including Booking Holdings (BKNG), Autozone (AZO) and Chipotle Mexican Grill (CMG), which have a market value of about $6 trillion, according to new BofA research.
Why rush to find the next split? Stocks in the S&P 500 that split most recently Amazon.com (AMZN), Alphabet (google), an Apple (AAPL) and Tesla (TSLA), just a year later grew by an average of 25%. That’s very close to easy money on Wall Street, canceling out the S&P 500’s 9 percent gain in that time, BofA found. Of course, Amazon’s reaction to this week’s 20:1 split is an example. Shares rose more than 5% in just one day after the announcement.
“We found that splits have historically been bullish for the companies that run them,” according to a BofA report co-authored by investment and ETF strategist Jared Woodard. “If more corporate managers take a shareholder-friendly stance, it could spark a wave of splits and bring more investors into the market.”
Is it time for the S&P 500 to split?
If you’re looking for the right time to get ahead of a stock split, you’re looking for it now. According to BofA, the number of stock splits could rise sharply after a steady decline since the late 1990s.
Over the past five years, only 28 companies have split their shares. According to BofA, this is more than 90% less than the peak value from 1996 to 2000. Notable splits in the 2020s: Tesla on August 10, 2020, Apple on July 30, 2020, and Old Dominion Freight Line (ODFL) in February 2020. Shares of all three companies rose sharply over the next 12 months.
Expect more stock splits now. Currently, 22 S&P 500 stocks, or nearly 5% of the index, are trading at $500 or more. This is the price level at which BofA considers a split more likely. The average price per share of the S&P 500 is now at its extreme: over 185 (excluding Berkshire Hathaway‘s (BRBA) is sky-high per share).
But more importantly, BofA suggests that the positive reaction many recent companies are getting after the split will encourage more of them. “We believe absolute stock returns may remain volatile this year, but new inflows could support companies with shareholder-friendly policies,” the report said.
Separation pays off. Shares of S&P 500 companies that have split since 1980 rose 7.8% in the next three months, far outpacing the index’s 2.1% gain during that time. And they outperform even more in a year. Stocks that have been split since 1980 have jumped more than 25% in the 12 months since the split, according to BofA. This is significantly higher than the S&P 500’s 9.1% gain during that time.
Even companies that have shied away from separation are doing so. Amazon announced a surprise split on March 9, along with a $10 billion share buyback.
What do splits mean
The separation itself has no financial significance. The market value of the company, other things being equal, remains unchanged. Although you will own 20 times more Amazon shares after the split, the share price will also be divisible by 20.
But the split is bullish for S&P 500 investors, according to BofA.
“Some of the benefits are probably performance related. Companies that announce a spin-off typically see sustained market dominance and expect that dominance to continue,” BofA said. “After the split, investors who wanted to gain or increase exposure may start rushing for buying opportunities.”
Next S&P 500 stock split?
S&P 500 stocks trade over 500 shares
| Company | Symbol | Closing March 10 | Stock from the beginning of the year, % Ch. | Sector |
|---|---|---|---|---|
| network video recorder | (NVR) | 4776.56 | -19.2% | Consumer discretionary |
| Amazon.com | (AMZN) | 2936.35 | -11.9% | Consumer discretionary |
| Alphabet | (google) | 2648.59 | -8.6% | Communication services |
| Booking Holdings | (BKNG) | 2031.69 | -15.3% | Consumer discretionary |
| Autozone | (AZO) | 1867.9 | -10.9% | Consumer discretionary |
| Chipotle Mexican Grill | (CMG) | 1469.03 | -16.0% | Consumer discretionary |
| Mettler-Toledo | (IPD) | 1338.34 | -21.1% | healthcare |
| Tesla | (TSLA) | 838.3 | -20.7% | Consumer discretionary |
| Equinox | (ECICS) | 706.47 | -16.5% | Real estate |
| BlackRock | (BLACK) | 697.2 | -23.8% | Finance |
| O’Reilly Automotive | (ORLY) | 675.73 | -4.3% | Consumer discretionary |
| TransDigm | (TDG) | 633.68 | -0.4% | Industry |
| Regeneron Pharmaceuticals | (REGN) | 630.36 | -0.2% | healthcare |
| Broadcom | (AVGO) | 587.73 | -11.7% | Information Technology |
| Statutory Communications | (CHTR) | 562.13 | -13.8% | Communication services |
| Bio-Rad Laboratories | (BIO) | 541.34 | -28.4% | healthcare |
| SVB Finance | (SIVB) | 539.51 | -20.5% | Finance |
| Thermo Fisher Scientific | (TMO) | 538.25 | -19.3% | healthcare |
| ServiceNow | (NOW) | 533.59 | -17.8% | Information Technology |
| Costco wholesale | (PRICE) | 532.88 | -6.1% | Consumer goods |
| IDEXX Laboratories | (IDXX) | 524.44 | -20.4% | healthcare |
Sources: Bank of America, S&P Global Market Intelligence, Berkshire Hathaway not listed due to cheaper stock class.matkranz
YOU MAY ALSO LIKE:
Bank Of America names 11 best stocks for 2022
MarketSmith: research, charts, data and coaching in one place
12 shares went from $10,000 to $413,597 in 12 months
Visit the new IBD Live panel discussion
Market drifts again; Four stocks in a distressed sector to look out for