The first half of the year saw a flurry of stock split announcements from various sectors, from technology giants Nvidia (NASDAQ: NVDA) to consumer inventory WalmartThese companies have done splits to lower their stock prices after the stocks had risen to great heights. The idea is to make it easier for more people to invest without having to rely on fractional shares.
These players helped the S&P500 higher in the first half of the year as investors welcomed news of the stock split. However, stock splits are not catalysts for stock performance because they are merely mechanical movements. So investors who take the opportunity to buy generally do so for a fundamental reason, such as confidence in the company’s future growth prospects.
As we enter the second half of the year, you may be wondering which stock split players can continue their upward trajectory and represent the best long-term bets. Let’s take a look at one you should buy hand over fist and one you should avoid like the plague.
Stock to buy: Nvidia
Nvidia is already up more than 150% in the first half of the year, thanks to its booming artificial intelligence (AI) business. The company sells the graphics processing units (GPUs) that power some of the most critical AI tasks — and Nvidia’s GPUs are the fastest on the market. So it’s no surprise that the company has an 80% share of the AI ​​chip market.
The tech giant also sells a wide range of related AI products and services, including enterprise software — available through all public cloud service providers. This makes accessing Nvidia very easy for potential customers.
This has helped the company generate record sales quarter after quarter, grow revenue and net profit in the triple digits and increase gross margin. In the most recent quarter, sales reached $26 billion and gross margin came in at more than 78% — from about 64% a year ago.
What makes me so optimistic about Nvidia in the second half and beyond? The company promises to update its best-performing chips annually, a strategy that should ensure it stays ahead of the competition. As part of this, Nvidia plans to launch its Blackwell architecture and chip later this year – a system laced with many innovations that could make it a game-changer.
All this means that Nvidia deserves its valuation of 46 times forward earnings estimates, and the stock’s gains this year and into the future may be far from over.
Stock to avoid: Chipotle
First of all I will start by saying Chipotle Mexican Grill (NYSE:CMG) isn’t necessarily a sell or avoid for every investor. This fast casual chain has steadily increased its profits over time, and its expansion strategy should continue to do so. Chipotle’s brand strength could also help it grow its revenue in the long run. So if you’re looking to diversify your portfolio and buy a solid restaurant stock, you might consider adding a few shares, or if you’re a current Chipotle shareholder, you might want to hold on to your position.
But for the value investor, Chipotle is a stock to avoid, and here’s why. The stock trades for 59 times forward earnings estimates, extremely high for the sector and high considering the source of Chipotle’s growth. It’s important to note that comparable sales growth at restaurants is in the mid-single digits, up 7% in the first quarter of this year and 7.9% for full-year 2023. So Chipotle’s growth has come largely from adding new restaurants — it opened 271 last year.
Chipotle, now with about 3,500 locations, wants to double that to 7,000 in North America, and the company is also expanding internationally. It’s fine to grow through expansion, but without stronger comparable sales increases, Chipotle doesn’t look like a high-growth stock today, but it does trade at growth stock prices.
Of course, Chipotle stock may still have room to rise over time as the company’s new locations drive more revenue. But given the stock’s hefty price tag, value investors should avoid this expensive player like the plague as we head into the second half of the year.
Should You Invest $1,000 in Nvidia Now?
Before you buy Nvidia stock, here are some things to consider:
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Adria Cimino has no positions in the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Nvidia, and Walmart. The Motley Fool has a disclosure policy.
1 Stock-Split Stock to Buy Hand Over Fist in the Second Half and 1 to Avoid Like the Plague was originally published by The Motley Fool
