Wednesday, May 31, 2017

5 Stocks Beyond Amazon That Are Ripe For A Share Split

Look at 3M, Cracker Barrel, Markel, Regeneron and Chipotle


By Jeff Reeves
MarketWatch
May 31, 2017

It has been 20 years since Amazon.com Inc.’s initial public offering, and a mere $100 invested in the IPO would have delivered more than $57,000 over the past two decades.

But those gains have been largely without stock splits. In fact, there hasn’t been an effort to rein in Amazon’s AMZN, +0.09% per-share price since the 1990s, right before the dot-com crash. As a result, this high-flying technology company is pushing up against $1,000 a share.

Personally, I don’t care much about per-share pricing. To me it’s like slicing up a pizza — the quality of the pie doesn’t change whether it’s in one giant circle, four big slices or eight modest servings. But many investors care a great deal about individual share pricing, and prefer nominally “cheaper” stocks that allow them to buy in round lots or perhaps more easily make sense of related metrics such as earnings per share.

Unfortunately for those in this mindset, splits are increasingly uncommon. According to research cited in a recent Wall Street Journal report, just six companies in the S&P 500 split last year, down from 93 splits 20 years ago.

As one of the hottest stocks on the market as well as the priciest, Amazon is an easy target for those advocating for more stock splits. But there are plenty of other lesser-known targets that should split their shares.

Here are five, all outside the technology sector:

3M

•Industry: Industrial products

•Last split: 2003

When investors think about sectors that boast expensive companies on a per-share basis, they typically think technology. That’s what makes the triple-digit price of chemicals giant 3M Co. MMM, +0.88% such an outlier. Not only does the company trade for roughly $200 a share, it is right up against all-time highs after an impressive run of nearly 20% in the past 12 months.

Furthermore, history shows that 3M used to be a big believer in splits up until pretty recently. That includes three 2-for-1 splits across just 16 years — in 1987, 1994 and again in 2003. This materials stock may not be the first candidate for a split on many investors’ lists, but it certainly seems overdue.

Cracker Barrel

•Industry: Restaurants

•Last split: 1993

Another example of an under-the-radar split candidate is Cracker Barrel Old Country Store Inc. CBRL, +0.16% The corporation executed a flurry of splits in its early years of trading; after its 1981 IPO, CBRL split 3-for-2 seven times across the next 12 years. But that last split was way back in 1993, and since then shares have soared to well more than $100 a share.

Admittedly, Cracker Barrel hasn’t had an Amazon-like run in the intervening years, with its share price only topping the triple-digit mark back in 2013. However, a five-year return of about 180% and continued strength in shares hints that it’s time for this restaurant stock to serve up another split.

Markel

•Industry: Insurance

•Last split: 1989

For one, Markel Corp. MKL, +0.07% boasts a sky-high share price that is one of the biggest on Wall Street; it, too, is approaching $1,000 a share. Also noteworthy is recent success for the stock, including a run of 125% or so in the past five years vs. just 85% or so for the S&P 500 SPX, -0.12%

The company is very stable with about $2 billion in cash on the books, but it has no dividend to speak of and shares have pretty much flatlined in the last 12 months. If the company wants to reinvigorate its investors and catch the attention of Wall Street, a big split might be the way to do it.

Regeneron

•Industry: Biopharmaceuticals

•Last split: Never

To the best of my knowledge, biotech darling Regeneron Pharmaceuticals Inc.REGN, -1.43% has never split its shares. That’s not entirely surprising: It traded under $30 for most of its first 26 years on the public markets, and its shares only recently ramped up dramatically. The stock attained triple-digit territory at the beginning of 2012, and across the past five years has gained about 250%.

While shares are off considerably from all-time highs of nearly $600 in 2015, the current share price in the mid-$400 range is among the most expensive on Wall Street and could warrant a split.

Chipotle

•Industry: Restaurants

•Last split: Never

After its 2006 IPO, Chipotle Mexican Grill Inc. CMG, -0.93% more than tripled through the end of 2007, achieving a share price of more than $100 right before the financial crisis gripped Wall Street. Shares declined with the rest of the market, of course, but Chipotle quickly emerged as one of investors’ favorite growth stories and raced up to a peak of more than $700 a share in 2015. Investors were calling for splits left and right … and then food poisoning scares, supply chain woes and a big drop in share prices took center stage.

Fast-forward to 2017, and the company seems to be stabilizing at last, posting strong earnings in April and approaching a new 52-week high while trying to top $500 for the first time since 2015. If Chipotle reaches that pinnacle and holds it, it may be time for the company to consider a stock split – both as a sign of confidence in shares and to entice investors who had given up on the stock a few years back.


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