Technical sell-off: 2 stock splits that could send the market higher

Sometimes, when a company achieves significant growth and attracts a lot of stock-buying interest, its share price soars to the point where small investors can’t even consider buying it. Warren Buffett’s holding company, Berkshire Hathaway (BRK.A -1.34%)(BRK.B -1.34%), is a good example. Its Class A shares are now trading at around $477,000 per share. Berkshire management wanted to make the company more accessible to shareholders, so it began issuing Class B shares in 1996. The stock is trading at $320 per share, which is more reasonable.

Some high-growth tech companies faced similar popularity issues, but instead of issuing new classes of stock, they opted for stock parent company letter (Google 0.83%)(Google 0.86%) Class A shares currently trade around $2,310 per share, but it recently announced a 20-for-1 split in mid-July that would increase the number of shares outstanding by 19 times while reducing its stock price to about $115.50 .

An IT professional analyzes a laptop while connected to a server.

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It’s important to note that stock splits do not change the intrinsic value of the underlying business, but sometimes cause more small investors to buy the company because it becomes more affordable (Berkshire’s Class B stock has experienced a 50- 1-share split in 2010 to keep its price reasonable).Another way to make high-priced stocks affordable is to buy Fractional shares. But this option is not available to all investors and depends on the brokerage used.

While it’s best to focus on the core fundamentals of a particular business when considering stock investments, for some it may be a consideration. If that’s a factor you think is important, here are two companies that have announced plans to split their stock this year. Just know that these special stock split stocks are worth buying simply because of their success.

1. Alphabet (Google)

Alphabet’s operational diversity is one of its greatest strengths.In difficult economic conditions centered on technology NASDAQ-100 Index plummets Enter a bear markethaving multiple revenue streams can help companies withstand severe external shocks.

Alphabet’s Google is the world’s leading search engine with more than 92% market share, and while it’s a household name for the brand, Alphabet’s other business units shouldn’t be overlooked either.

Google Cloud is an emerging cloud services platform offering everything from collaborative digital documents to low-code artificial intelligence and machine learning tools for developers. Google Cloud revenue grew 43% year over year in the most recent first quarter of 2022, outpacing Alphabet’s overall revenue growth of 23%. The cloud industry will be worth $1.55 trillion annually by 2030 (15.7% CAGR), so it’s promising to see this business unit build momentum for Alphabet as it can drive significant growth.

The company also owns YouTube, the world’s most popular video platform, which generated $29.7 billion in ad revenue over the past 12 months. Alphabet’s various divisions collectively contribute to a highly profitable broader company with earnings per share (EPS) of $112.20 in 2021, putting its stock in the midst of a P/E ratio Just 20 times lower than the Nasdaq 100, which trades at a ratio of 25.

Analysts expect Alphabet’s earnings to be flat in 2022, which is part of the reason for the current share price discount. But the metric is expected to return to growth substantially in 2023, with earnings per share expected to exceed $132. Here’s an opportunity for investors to buy now the stock, which is trading down 25% from its all-time high, especially with an impending stock split that could spark renewed investor interest.

A blue Tesla car drives on the open road.

Image credit: Getty Images.

2. Tesla

Electric vehicles (EVs) promise to be one of the most transformative technologies of a generation.Management of a semiconductor powerhouse Micron TechnologyCompanies specializing in memory and storage chips describe these new vehicles as data centers on wheels.Electric vehicles require the processing power of advanced computers, Teslaof (Tesla -0.86%) In addition to rapidly improving self-driving capabilities, they also feature a range of digital innovations, including the ability to browse the internet and play games on the in-vehicle infotainment system.

Tesla is currently the global leader in the electric vehicle industry, not just in numbers. The CEO of one of its main competitors, Volkswagen Group, He praised Tesla for innovating not only inside its cars, but also in its production process, bringing efficiency to new levels.

As Tesla ramped up vehicle deliveries (310,048 in Q1 2022), its auto gross margin climbed to a new high of 32.9%. Such high profit margins are a testament to the benefits of scale: As the company produces more cars, its fixed costs as a percentage of revenue continue to decline, paving the way for more profits. In the most recent quarter, the impact flowed to profits, with adjusted EPS soaring 633% year over year to $2.86.

But the company promises to be more than just an automaker. It has also made great strides in the production and storage of green energy. Tesla’s residential solar roofs have huge potential, and its residential battery storage deployments nearly doubled in the first quarter, with production struggling to keep up with demand. Tesla even built a new factory specifically to make more batteries.

Tesla management has announced that it intends to split its stock (currently trading at $755 per share) sometime this year, but has not specified details. Tesla’s 5-for-1 split in 2020 was followed by a surge in shares. To be fair, the price increase coincided with solid operational progress, which may have been the real source of price growth at the time.

Investors are also likely to see more growth in the stock following the impending split. But again, that could be attributed more to Tesla’s growing vehicle deliveries and soaring profits.