A new trend may be developing in the U.S. stock market that could be beneficial for the small investors who often feel left out of the bull market because of extremely high prices. Even with the major stock indexes hovering near all-time highs, many small investors feel that they’ve missed the opportunity for huge gains because high-flying stocks like Amazon, Apple and Netflix are just too expensive to buy. In the meantime, they have to settle for buying ETFs and mutual funds, which give them less bang for the buck than holding individual shares.
The days of extremely high priced stocks may be numbered however with Apple and Tesla, a pair of widely popular stocks with the institutions, recently announcing stock splits. By splitting their stocks, they are lowering their respective share prices, which should put them within the reach of smaller, individual investors. Besides helping the small investor get into the game, a stock split is also good for a company’s liquidity by creating more demand for its stock.
Apple Announces 4-For-1 Stock Split to Bring in New Investors
On July 31, Apple essentially put its shares on sale when the iPhone giant announced after the market closed that its board approved a 4-for-1 stock split for every shareholder of record at the close of business on August 24.
This means each current Apple shareholder will receive three additional shares for every share held. Shares will begin trading on a split-adjusted basis on August 31.
Based on Wednesday’s closing price, after the split Apple’s shares would cost $113.00 apiece. This should be attractive to investors who want to own the stock, but couldn’t afford to pay $452 for a single share. Demand is expected to increase with the move which typically causes a stock’s price to rise. This is how existing shareholders benefit from the stock split.
This is Apple’s fifth stock split since it went public. It also split on a 7-for-1 basis on June 9, 2014; a 2-for-1 basis on February 28, 2005; a 2-for-1 basis on June 21, 2000; and on a 2-for-1 basis on June 16, 1987.
Tesla Shares Surge Day after Stock Split Announced
Shares of Tesla climbed 13.12% a week ago as investors continued to rally on the company’s 5-For-1 stock split announcement from August 11. The split goes into effect after the close of trading on August 31.
While stock splits don’t create value per se, and institutional investors are typically largely indifferent to them, Tesla’s stock price has reacted very positively to the news. This is probably because Tesla has a very large retail investor following, and the stock split essentially lowered the bar for small investors.
CNBC’s Cramer Calls on 10 Companies, including Amazon and Alphabet, to Issue Stock Splits
“If you want the market to keep climbing, these ten companies – and many more – need to start taking their cue from …Time Cook (Apple) and Elon Musk (Tesla), CNBC’s Jim Cramer said.
“This new cohort of investors, the ones who love low-dollar amount stocks, will start buying and holding these best-of-breed names rather than the darned penny stocks,” he said.
Below is a list of companies, alongside their Wednesday closing prices, that Cramer would like to see divide their existing shares into new shares and boost liquidity”
Amazon – $3,162.24
Chipotle – $1,160.92
Netflix – $475.47
Nvidia – $457.61
Adobe – $445.36
Costco Wholesale – $336.76
Home Depot – $281.58
Facebook – $259.89
Microsoft – $209.19
It’s been proven that stock splits are beneficial to a company’s share prices so don’t be surprised if the moves by Apple and Tesla are followed by stock splits in several of the high-flying stocks.
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This article was originally posted on FX Empire
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