If you’re looking for what constitutes a ‘buy’ signal, stock splits have to be pretty high on the list.
Companies that have witnessed sustained periods of bullish trading sentiment have historically turned to stock splits to ensure their shares remain appealing to smaller investors by keeping each individual share pinned back at a lower amount. On 31st August 2020, two of the world’s hottest stocks – Tesla and Apple – began trading with their newly revised share prices to reflect their respective splits, so might they be something for an investor portfolio…?
Roaring ahead – Tesla
Tesla’s 5-for-1 stock split was announced in August as a way to ensure the company’s shares remained “accessible to employees and investors”. Between the announcement on 11 August 2020 and Friday (28 August) – the last day of trading prior to the split – Tesla’s shares had soared by 61%. Since the split, the company unveiled plans to sell even more stock and take advantage of current investor appetite.
Sceptics of the company’s recent rocketing share price have questioned whether the climb has purely been the result of retail traders piling into a stock of which they know very little. But Bloomberg data shows the world’s largest asset managers account for the majority of the stock’s ownership, with Baillie Gifford, BlackRock, Capital Group, FMR and Vanguard listed as the top five holders as at the end of July 2020.
With this sort of institutional investor interest – particularly from the major fund houses –Tesla may yet see a further boost if major ETF providers are compelled to buy the stock should it be admitted to the US’s index of leading shares, the S&P 500.
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A bigger bite – Apple
By comparison, Apple’s share price isn’t anticipating any further propulsion from promotion to the S&P 500 — it’s already there. But, like Tesla, it split its stock 4 to 1 on 31st August 2020. Of course, long-term shareholders of Apple have been here before. In fact, the company has now split its stock five times since listing way back in 1980.
Having completed the latest stock split on 28th August 2020, Apple has seen the newly valued shares continue to climb steadily, as Reuters reported that the group had given the green light for 75 million 5G iPhones to go into production. News that suppliers have been appointed to deliver the latest product line has cheered investors, who were already celebrating its results for the quarter ending 27 June 2020, showing revenue up 11% on the same period a year earlier.
Analyst sentiment suggests there is more growth to come. The company’s digital services, notably Apple TV+, are likely to see an uptick in subscribers once 5G beds in. The company is continuing to invest heavily in this service. Most recently it announced the premier of its latest original series Long Way Up – featuring Ewan McGregor – illustrating its commitment from last year hasn’t yet waned. In 2019, the company committed to spending $6bn on original content, according to the Financial Times.
And while it is still investing heavily here, it is also continuing to refurbish unwanted older phones to release them in developing market economies. This strategy affords it the chance to expand its customer base and make additional revenues from accessories and services on the IOS app store.
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An increasingly crowded platform – Ethereum
A growing customer base is also the story behind the blistering climb in the price of Ethereum’s Ether. At the 2019, Ether was trading at £105.56, but investors have seen a stunning 183% increase to £298.54 by 28 August 2020.
Part of Ether’s price rise is being fuelled by the insatiable demand for small decentralised finance tokens, as users on the Ethereum network use Ether to pay for transaction fees. When there are more transactions, users need to purchase more Ether. A quick look at transaction volumes on Ethereum show how demand is driving the price. Analysts studying Ethereum have given mixed views for the immediate months ahead, but they agree that the platform is leading the smart contract market. When compared to rivals Cardano or EOS, for example, Ethereum continues to dwarf its competitors by market cap, which is seen to be the key indicator of current market share.
That said, analysts remain at odds as to whether Ethereum will be able to maintain its market share with growing competition from other platforms. The fact that Ethereum is open source means it is vulnerable to those wanting to offer copycat services.
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