Let's face it. There are some stocks out there that are priced way too high, and others that are priced way too low. One thing on my bucket list is to own a Class A share of Berkshire Hathaway (NYSE:BRK.A), but that won't be happening anytime soon.
There are plenty of stocks out there that trade for more than $100, some of which might want to consider a split. And there are a few low traders out there that might want to do the reverse. So let's discuss some possible candidates.
With over $81 billion in cash plus investments, there's been a lot of chatter out there about what Apple should do with its cash. Some say a buyback. That's a possibility, but probably not in the next few quarters. Some want a dividend. I don't think that's wise. Others want an acquisition, and here, I've laid out some possible targets.
There is no consensus on which of the three is best. However, in all of the discussions I've had with others, they agree on something else. A stock split. Now, I'm not calling for a 8 or 10 to 1 split, not at all. Somewhere in the 3 to 5 range would probably be best. And now probably is a good time. I can remember calls for Apple to split at $200, and before the earnings selloff it was at $425. A split would certainly open up some shares for smaller investors, allowing more people to get into what has been the largest US company by market cap.
Many people believe Apple's growth period has either just started or is about halfway through. So let's allow more people to get into this game. As premium of a company as Apple is, there is nothing wrong with its stock trading at $100 per share.
Over the last 2 years, Google's stock has been stuck mostly in a range between $475 and $625. It cannot seem to break out of this range for any extended period of time, in either direction. The company recently announced a blowout quarter, sending shares spiking, but we've seen this happen before. Stock runs up, pops above $600 for a short time, and then heads lower again.
Officially, Google was never over $600 during market hours on Friday, only in the pre-market. Now it's back down to $580. That means it's already lost about half the post-earnings jump (from about a $605 high). In early 2010, Baidu (NASDAQ:BIDU) was trading in the mid $650s and it announced a 10 for 1 stock split. Where is that stock now? Try $124. Now, yes, Baidu is not as large as Google. I get that. But does anyone really believe Baidu would be at $1240 currently if it hadn't split? How about that 52-week high (split-adjusted) of $1659.60? I really doubt it.
And Google really doesn't need to do a 10 for 1, although it could if it wanted to. A 5 for 1 would do the trick. A 7 for 1 would get it back to its IPO price. The main thing it would do is get the stock going. Google has been spinning the tires for too long, and all that does is wear you down.
I wrote a few weeks ago that Priceline had outpriced itself, meaning that I believed the stock was a little too high. At $520 I was not a fan of the earnings multiple, and even at $475 now I'm still not a believer. The low of $411 was an overreaction to the downside we saw in the markets recently, but I've stated before that I think $450 is fair.
That being said, since March, Priceline has fell into the Google trap. It is stuck between $450 and $550. Take a LOOK at the chart and you can see how it almost is perfectly stuck in that range. I believe the stock will make another run at $550 if it comes out with a good quarter when it reports in early November, but like Google, I don't see it breaking out of the range. Unless it splits the stock.
Priceline has always had a high price to sales ratio, and as an investor, I'd be much more willing to get in a high growth stock like this at a lower numerical price. Even a 2 for 1 split would help in my opinion, but I'm guessing that any split for Priceline would be a 4 to 1 at least.
International Business Machines (NYSE:IBM)
Thanks to Monday's stock selloff, IBM is the only Dow Jones Industrial Average component with a share price over $100. And it's almost at $200. Like Apple, IBM is at a 52-week high and the company is doing extremely well right now.
Since the Dow is a price weighted index, IBM is obviously the largest component. When IBM last split in 1999, it was in the low $200s. It is rapidly approaching that number again.
A 2 for 1 or 3 for 1 would work for the stock. And since there haven't been any changes to the DJIA index lately, let's give them some work to do by splitting IBM.
Split a stock under $3.00? Yes, I say. But this needs to be a reverse stock split. Yes, I know, there are plenty of stocks out there who did a reverse stock split then fell even more, but consider Sprint for a moment. The company is entering a new stage. It now has the iPhone. The company has turned an operating profit in the last 2 quarters.
The company is making a comeback. Now, the expected infrastructure build Sprint will need was about double what most expected, so the company will need some fresh capital, and probably sooner rather than later. You figure that further dilution could drive this down to $2.00, or maybe even lower. So why not try a reverse stock split?
If the company is truly entering a new stage, it might just do the trick. And anyone that can't buy low priced stocks (like under $5 or whatever) will have access to the company. They just might want in now that the iPhone is here.