Alphabet Leads the Way
Last week, Alphabet (NASDAQ:GOOGL) announced it will be undergoing a 20 for 1 stock split on July 1st, making the expensive stock more accessible to retail investors. It is the same reason why Tesla (NASDAQ:TSLA) split its stock back in August of 2020, and why many investors are pining for Amazon (NASDAQ:AMZN) to do the same. Are stock splits good for these companies? It really has no intrinsic change to the value of the stock, although the psychological barrier to entry of a high-priced stock is always intimidating for retail investors. A company like Apple (NASDAQ:AAPL) has undergone several stock splits in recent years, but also does a ton of share buybacks to offset this.
There’s another reason why companies undergo stock splits: to be priced into certain indices. Tesla joined the S&P 500 shortly after it split its stock, and Apple was added to the Dow Jones Industrial average, which is a price-weighted index. Is there a chance that Alphabet has a desire to be included in the Dow Jones alongside Apple and Microsoft (NASDAQ:MSFT)? It’s possible. Here are two other stocks that I believe should consider a split given the recent news from Alphabet.
Tesla (NASDAQ:TSLA)
I know, I already mentioned it here. But Tesla’s stock has shown unprecedented growth over the past couple of years. Even after its first stock split in August of 2020, the share price has already doubled, once again excluding retail investors who are supportive of the company. CEO Elon Musk has always been an advocate for the underdog, whether it is through cryptocurrencies like DogeCoin, or questioning government mandates and regulations. Amongst Wall Street analysts, Tesla has a median price target of $1,113, meaning the stock has a good chance of climbing above $1,000 per share again this year. I think another Tesla stock split comes sooner rather than later, which would certainly be to the benefit of investors everywhere.
Costco (NASDAQ:COST)
Don’t look now but the wholesale retailer has gained over 45% during the past 52-weeks, and its shares are now trading above $500 per share for the first time in the company’s history. Costco is another American company that could be looking to be added to the Dow Jones in the future, as it could look to boot some older companies out of the blue-chip index. I put Costco up there right alongside WalMart (NYSE:WMT) and Home Depot (NYSE:HD) as the most important retailers in the world. Some analysts have even said that Costco is the single biggest threat to Amazon for global retail domination. It would be the company’s first split since 2000, and would put it firmly in the running alongside Alphabet to join the Dow 30. Aside from the change of a split, I think Costco is as solid of an investment as you could make. It trades at a bit of a higher multiple right now at above 40 times earnings, but we saw during the pandemic it is as fundamentally sound of a company as there is. It is also critical to the US economy, and is making strides to expand globally as well.
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