Stock splits, once a popular sign of company health and optimism, have become rare, observes Richard Moroney, editor Dow Theory Forecasts.
Since 2008, the S&P 500 Index has averaged nine companies splitting their shares every year.
In the previous 14 years, index components averaged 62 splits — with 100 or more splits in three of those years.
The recession-driven decline from 2008 through 2010 made sense, but splits have yet to recover to their former frequency.
While the S&P 500 returned nearly 75% from the start of 2012 to the end of 2014, the index’s stocks delivered only 35 splits, well below the historical average for a single year.
In this environment, predicting future splits is risky. While we stop short of promising a split in the year ahead, we’ve created a short list of stock-split candidates from our buy lists.
- Lam Research (LRCX) - a semiconductor maker — currently trades at $89, and last split over 16.3 years at a price $134.
- Laboratory Corp. of America (LH) — a healthcare diagnostics firm — currently trades at $136, and last split 14.2 years ago at a price of $104.
- F5 Networks (FFIV) — a cloud and data networking firm — currently trades at $116, and last split nearly 8.9 years ago at a price of $71.
- LKQ (LKQ) — an auto parts distributor — currently trades at $33, and last split 3.8 years ago at a price of $38.
These stocks stand out because of:
- A history of splits, suggesting the company is amenable to the idea.
- At least 65% returns since the last split, and at least 15% returns over the last six months, since companies aren’t likely to split while their stock is going down.
- Solid operating momentum (at least 5% growth in sales and per-share profits over the last year).
- Expected annual profit growth of 10% or more over the next five years.
Will all four stocks of these stocks split? Probably not. But they’re likely thinking about it.
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By Richard Moroney, Editor of Dow Theory Forecasts
