With market valuations inflated and investors uncertain about what comes next, consider one of the more reliable systems for finding winners—stock splits. Every year, a dozen or more companies “split” their stocks. Example: A company has 10 million outstanding shares priced at $100/share. The board of directors votes to increase outstanding shares to 20 million and drop the price to
$50/share, so the split doesn’t change each shareholder’s stake. A stock tends to outperform the market for one to three years after a split. It indicates management’s confidence in earnings growth, and shares look affordable to new investors.
Since 1996, Neil Macneale’s 2 for 1 Index has consisted of 25 to 30 companies. He adds one stock each month and holds it for 2.5 years after its inclusion in the Index, then replaces it. Since inception, the Index has a 12.1% annualized return versus 9.9% for the Wilshire Total Stock Market index. Each company’s market cap must be greater than $50 million…it must be listed on a major US exchange…it must be profitable and have a strong balance sheet and reasonable valuation. Three recent splits he has included in the Index…
Cooper Inc. (COO), a medical-device company. Its stock split 4-for-1 in February 2024. Recent share price: $94.89.
Mueller Industries (MLI), which manufactures copper and iron pipes. Its stock split 2-for-1 in September 2023. Recent share price: $59.10.
Old Dominion Freight Line (ODFL), the trucking company that delivered a 2-for-1 stock split in March 2024. Recent share price: $173.06.
