When you put your money to work on Wall Street, volatility is something you have to get used to. Before 2024 it was iconic Dow Jones Industrial Averagewidely supported S&P500and driven by growth stocks Nasdaq Composite fought the bear and bull markets four years in a row.
When the going gets tough on Wall Street, professional and retail investors generally seek the safety of leading companies and perennial outperformers. While FAANG stocks are a good example, investors have wisely favored companies that have implemented stock splits over the past three years.
Stock split stocks take center stage
A stock split is a cosmetic event that allows a publicly traded company to change its stock price and the number of shares outstanding at the same rate. I say “cosmetic” because stock splits do not affect a company’s market capitalization or operating performance.
Stock splits can take two forms: forward splits and reverse splits. A forward stock split involves lowering a company’s stock price to make it more nominally affordable to investors who may not have access to fractional share purchases from their broker. Meanwhile, reverse stock splits are intended to increase the stock price of a publicly traded company to ensure its continued listing on a major stock exchange.
Most investors tend to gravitate toward companies that implement forward splits – and for good reason. From an operational perspective, these companies are generally running at full speed and have handily outmaneuvered the competition. In many cases, companies that conduct forward stock splits have clearly defined competitive advantages.
However, Wall Street’s billionaire money managers have mixed views on what to expect from the stock split class in 2024. Following the release of Form 13F filings detailing buying activity for institutional money managers during the first quarter, we can see that billionaires were eager to expand two stocks with a stock split, while heading for the exit with another.
Stock-split No. 1 stock that billionaire investors are buying hand over fist: Chipotle Mexican Grill
The first stock split billionaires were happy to add their respective funds during the quarter ended March, a fast-casual restaurant chain Chipotle Mexican Grill (NYSE:CMG). In March, Chipotle announced plans to conduct a 50-for-1 split that will take effect before the opening bell on June 26, assuming it gets the green light from shareholders at the company’s upcoming annual meeting.
During the first quarter, Chipotle had four billionaires who were avid buyers, including (total shares purchased in brackets):
-
Ken Griffin of Citadel Advisors (135,356 shares)
-
John Overdeck and David Siegel of Two Sigma Investments (20,163 shares)
-
Jeff Yass of Susquehanna International (9,381 shares)
Chipotle Mexican Grill has proven virtually unstoppable since going public in January 2006. Just as grocery stores were increasing their margins by offering healthier and organic food options, Chipotle’s management team quickly realized that consumers would pay a premium for higher quality food. Chipotle avoids freezers, only uses responsibly sourced meat and sources its vegetables locally where possible.
Perhaps even more important is Chipotle’s decision to limit the size of its menu. By keeping the menu fairly small, the staff can prepare meals quickly and keep the queues moving in the stores and drive-thru. A smaller menu also creates more buzz when Chipotle introduces a new item.
Chipotle’s innovation beyond the grill also deserves a lot of praise. About six years ago, the company began introducing dedicated drive-thru mobile ordering lanes known as “Chipotlanes” at some of its locations. The idea has taken off since then. Chipotlanes have been especially useful during the COVID-19 pandemic and are responsible for creating a whole new revenue stream for the company.
Despite trading at a nosebleed premium, Chipotle Mexican Grill stock remains on the menu for select billionaire investors.
Stock split No. 2 that billionaire money managers are buying hand over fist: Sony Group
The other stock split that prominent billionaire investors snapped up shares of during the quarter ended March is the Japan-based consumer electronics company Sony group (NYSE: SONY). To be fair, Sony didn’t announce its 5-for-1 forward split until well after the first quarter ended. The first split for Sony in 24 years is expected to take effect on October 8 for shares listed in the US
While foreign-based companies rarely attract as much interest from billionaire investors as U.S. companies, two billionaire asset managers were big buyers of Sony stock in the first quarter (total shares purchased in parentheses):
-
Ken Fisher of Fisher Asset Management (457,754 shares)
-
Jeff Yass of Susquehanna International (104,859 shares)
Fisher’s purchase brought his fund’s stake to more than 6.8 million Sony shares. Meanwhile, Yass has increased Susquehanna’s stake in the company by 829% since December 31, 2023!
If you’re wondering why the dynamic duo of Ken Fisher and Jeff Yass are so bullish on Sony, look no further than the higher-margin operating segments. While demand for PlayStation 5 consoles has declined somewhat since its launch in November 2020, PlayStation Plus revenues are increasing. PlayStation Plus is a service that allows friends to play multiplayer games and gives gamers access to the cloud where their game data can be stored. This high-margin, multi-tiered service can be paid monthly or annually.
Furthermore, Sony is one of the world’s leading suppliers of image sensors used in smartphones. The 5G revolution gave consumers and businesses every reason to trade in their devices for models that can benefit from faster download speeds. With smartphone sales expected to grow through 2024, sales of Sony’s imaging and sensing solutions should continue to rise.
Don’t forget Sony’s recently announced stock buyback program. If the company maximizes its buyback program, it could retire nearly 2.5% of its outstanding shares and provide a modest boost to earnings per share (EPS).
The stock split billionaires sent to the chopping block: Walmart
However, not all stocks with stock splits were on the shopping list of billionaire money managers during the quarter ended in March. Retail Titan Walmart (NYSE:WMT)which completed a 3-for-1 stock split on February 26, showed four top-tier billionaires at the door, including (total shares sold in brackets):
-
Ken Griffin of Citadel Advisors (3,201,374 shares)
-
Jeff Yass of Susquehanna International (1,540,745 shares)
-
Steven Cohen of Point72 Asset Management (1,152,746 shares)
-
Ray Dalio of Bridgewater Associates (745,275 shares)
One possible reason why billionaires were moving away from Walmart in the first quarter is the likelihood that the U.S. economy will enter a recession in the coming quarters. While economic data remains relatively strong, a historic decline in M2 money supply signals trouble ahead. Retailers like Walmart could struggle if consumers kept more of their disposable income.
Another potential problem is Walmart’s valuation. As of the closing bell on May 17, shares were trading at nearly 25 times consensus 2025 EPS. This represents a premium of about 6% to Walmart’s average earnings over the past five years. Furthermore, the stock market is historically pricey and may be due for a significant pullback.
Despite these headwinds, Walmart continues to move its earnings needle in the right direction by using size to its advantage. Buying products in bulk and undercutting the price of local stores and supermarket chains has been a winning formula for driving traffic to the stores for decades.
Nevertheless, Walmart probably needs one big the number of high-margin Walmart+ membership purchases will increase if the company has any hope of a future 25 profit margin in the near term.
Should You Invest $1,000 in Chipotle Mexican Grill Now?
Before you buy shares in Chipotle Mexican Grill, consider this:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Chipotle Mexican Grill wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $652,342!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns May 13, 2024
Sean Williams has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Chipotle Mexican Grill and Walmart. The Motley Fool has a disclosure policy.
2 Stock-Split Billionaires Are Buying Hand Over Fist, And 1 They’ve Sent to the Chopping Block was originally published by The Motley Fool
