Much of the buzz on Wall Street these days is about Tesla, Inc
and Apple Inc
stock splits. Tesla’s shares have already soared 35% since the stock split announcement on Aug 11, propelling the electric car maker’s market valuation to $401.2 billion as of Aug 26. Tesla will split its stock on a 5-for-1 basis. The Silicon Valley car maker’s stock currently trades above $2,000 a share, and following the split it should drop to around $400. The company said that the move is aimed at making “stock ownership more accessible to employees and investors.” After all, Tesla’s share prices have more than tripled so far this year, making it exhorbitant for millennials and retail investors. Tesla, nevertheless, will start trading on a split-adjusted basis from Aug 31. Similarly, Apple’s shares have jumped more than 25% since the announcement. Apple will split its stock 4-for-1, which implies that its existing shareholders will receive three additional shares for each share they currently hold. But most importantly, Apple’s stock price will drop to $125 a share after the split from the range current $500. This will thus make Apple’s stock available to a wider of investors. But will Tesla and Apple’s stock price dip attract investors and in turn help their shares scale even higher? One thing is for sure that the stock split hasn’t changed their market cap, neither has it raised any alarm about their underlying fundamentals. Both the companies are doing pretty good lately, which gives all the more reason to keep an eye on these stocks. Several analysts have already praised Tesla’s cash reserves, the increase in demand for its electric vehicles and its Rising Model 3 deliveries, which form a major chunk of the automaker’s overall deliveries. Tesla is also making continued efforts to increase vehicle deliveries. Last year, Tesla delivered 367,500 vehicles, an increase of 50% year over year. And for this year, Tesla maintains the target of exceeding 500,000 vehicle deliveries despite the recent production interruptions amid the coronavirus pandemic. Higher volumes should eventually help Tesla achieve cost and production efficiencies, thereby strengthening its profit margin. Thus, the company’s expected earnings growth rate for the current year is more than 100%, while its projected growth rate for the next year is 67.9%. In fact, the Zacks Rank #3 (Hold) company’s shares have already outperformed the broader Automotive - Domestic
industry so far this year (+414.7% vs +129.8%). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
When it comes to Apple, the company recently became the first publicly traded U.S. company to breeze past a market cap of $2 trillion. The company, no doubt, has proven to be resilient to the coronavirus pandemic, and it still generates more than 80% of revenues by selling high-priced devices, primarily made in China, where the virus was first broke out. By the way, combined revenues for all those high-priced devices jumped 10% year over year in Apple’s most recent fiscal quarter ended Jun 27. And let’s admit, an almost $2-trillion valuation shows that market pundits expect almost nothing to go wrong for this tech behemoth, and are willing to pay a hefty sum for its shares. After all, despite issues, the social-distancing environment will continue to fuel growth in the segment that includes the App Store and Apple Pay. Even though Apple saw widespread retail closures in recent times, work-from-home trends and strong online sales will continue to boost overall operations. Apple currently boasts more than 550 million paid subscribers across its Services portfolio. Further, the App Store continues to draw the attention of prominent developers worldwide, helping the company offer appealing new apps that drive App Store traffic. Thus, the Zacks Rank #1 (Strong Buy) company’s expected earnings growth rate for the current and next year is 8.7% and 23.8%, respectively. Apple’s shares have outpaced the broader Computer - Mini computers
industry year to date (+72.3% vs +70.7%).
Having said that, history is on the side of Tesla as well as Apple. According to online broker eToro, for decades, big brand names have on average witnessed a 33% rally, a year after splitting their stock. While Apple will be splitting the stock for the fifth time in its history, it will be the first time for Tesla. And in case of Apple, its shares have gained on average 10.4% in the following year, with its four previous splits.
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