Although 2023 was a stellar year for the stock market, volatility has been the name of the game for much of the past four years. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite have oscillated between bear and bull markets in successive years since this decade began.
When volatility picks up on Wall Street, professional and everyday investors have a tendency to seek out companies that offer a history of outperformance. For the past two and a half years, it’s stocks enacting splits that have fit the bill.
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In simple terms, a stock split is an event that allows a publicly traded company to alter its share price and outstanding share count while having no impact on its market cap or operations. Think of it as a purely cosmetic procedure that can make shares more nominally affordable for retail investors (i.e., a forward-stock split), or can increase a publicly traded company’s share price to ensure continued listing on a major stock exchange (i.e., a reverse stock split).
While there are instances of companies conducting reverse-stock splits and going on to deliver big-time gains for their shareholders (e.g., Booking Holdings), most investors are laser-focused on companies conducting forward-stock splits. That’s because forward splits are enacted by high-flying companies that have often out-innovated and handily out-executed their competition.
Since the midpoint of 2021, nine prominent companies have completed a forward-stock split:
- Nvidia (NVDA -2.73%): 4-for-1 split
- Amazon (AMZN -1.32%): 20-for-1 split
- DexCom (DXCM -0.81%): 4-for-1 split
- Shopify (SHOP -5.22%): 10-for-1 split
- Alphabet (GOOGL -1.09%) (GOOG -0.97%): 20-for-1 split
- Tesla (TSLA -0.02%): 3-for-1 split
- Palo Alto Networks (PANW -2.02%): 3-for-1 split
- Monster Beverage (MNST 1.70%): 2-for-1 split
- Novo Nordisk (NVO -1.29%): 2-for-1 split
Every single one of these businesses is a dominant player with well-defined competitive advantages in their respective industries. For example, Nvidia’s graphics processing units are the infrastructure backbone of the artificial intelligence (AI) movement, Amazon accounts for roughly 40% of U.S. online retail sales, Tesla is North America’s leading electric vehicle (EV) manufacturer, and DexCom is a top-two producer of continuous glucose monitoring systems.
However, the individual outlooks for these nine stock-split stocks differs greatly in 2024 (and beyond). Whereas one stock-split stock is historically inexpensive and primed for additional upside, another highflier appears to be headed for a breakdown.
The stock-split stock to buy hand over fist in 2024: Alphabet
Though all nine of these prominent companies have run circles around the benchmark S&P 500 over the long run, it’s Alphabet that stands out as the stock-split stock to buy hand over fist in the new year. Alphabet is the parent company of popular internet search engine Google and streaming platform YouTube.
The biggest “problem” (if you want to call it that) for Alphabet is that it’s cyclical. Approximately 78% of the company’s third-quarter revenue is derived from advertising. When the slightest hint of trouble is detected by businesses, it’s not uncommon for them to quickly pare back their ad spending. This leaves Alphabet susceptible to weakness during recessions. A couple of money-based metrics and predictive tools suggest an economic downturn is in the cards for 2024.
However, this is a two-sided coin that’s far from proportionate. Though it’s true that recessions are a perfectly normal and inevitable part of the economic cycle, only three of the 12 recessions since the end of World War II have lasted at least 12 months. Further, not a single one has surpassed 18 months.
By comparison, most economic expansions endure multiple years, with two periods of post-World-War-II growth lasting more than a decade. In short, ad-driven businesses are well positioned to succeed as the U.S. economy expands.
Alphabet’s clearest competitive advantage has long been its search engine, Google. In November, Google totaled 91.54% of worldwide search share, according to data from GlobalStats. You’d have to go back to March 2015 to find the last month Google hasn’t accounted for at least 90% of global internet search share. Being the undisputed go-to for advertisers wanting to reach users has afforded the company exceptional ad-pricing power in virtually any economic climate. This moat isn’t going away in 2024.
The new year should also feature double-digit growth opportunities for two of Alphabet’s fast-growing ancillary segments. YouTube is the second most visited social site in the world, with more than 2.7 billion monthly active users. Rapid growth in Shorts (short-form videos often lasting less than…
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