Seeking Alpha

Can You Build A Successful Portfolio Using Stock Splits? - Part 2

by: Celan Bryant
Celan Bryant
Financial regulation, government reports, banks, Bitcoin

In March, we started a portfolio based on recent stock splits.

Our first selection was Westlake, which is up 15.51%, and in May we selected Google, which is down 3.04%.

Net/net the portfolio is up 6.18%, since March 24.

This article is building on an article entitled Can You Build A Successful Portfolio Using Stock Splits? published at the end of March regarding the use of stocks splits as a portfolio strategy. The main takeaway from the article is that stock splits, either through increased access, marketing or momentum, tend to outperform the market over a 30-month period. As a way to test the theory, we're building our own portfolio.

March Pick - Westlake (NYSE:WLK)
As a quick review, our first pick for the portfolio was Westlake. We purchased $10,000 shares on March 21 for $66.97. As of today, May 7, the stock is up 15.51%.

April Pick - Google (NASDAQ:GOOG), (NASDAQ:GOOGL)
In the interest of "continuous improvement," and based on your feedback, I'll be refining our selection criteria as we go along. In addition to a 2:1 ratio split, I've also decided to focus on optionable stocks. I believe these offer great liquidity.

In April, as you can see from the chart below, there were nine stock splits of note, but only six were 2:1. Of those six, only four were optionable.

Source: Yahoo!

So that leaves us with Pegasystems (NASDAQ:PEGA), Google, Liberty Ventures (LVNTA), and Under Armour (NYSE:UA). On April 24, each of these had a P/E of 34.63, 27.52, N/A, and 67.52, respectively. Following the advice of Neil Macneale, from the first article, we don't want overvalued stocks. Based on P/E, the most undervalued among these was Google. On April 24, we bought $10,000 of Google at a price of $525.16. As of today, May 7, Google is trading down 3.04%, and the portfolio itself is trading up 6.18%.

May Pick - ?
There are four stock splits scheduled for May.

Source: Yahoo!

The selection may be easy this month, since Trex (NYSE:TREX) is the only 2:1, optionable split announced. I'll wait until the end of May to make a selection in case we have any late arrivals to the schedule.

As always, let me know if you have any suggestions. One contributor suggested varying holding periods, but we're going to stick with the 30-month holding period for now and see what that does for us.

Until next month...

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.