Fools know the value of a stock split: zero. It's a non-event. Instead of a $20 bill in your wallet, you now have two $10 bills. So if they mean nothing, why do them? There are a few reasons, none of which has anything to do with whether the stock is a good investment. Here are the usual ones:
To make the stock look cheap.
To increase liquidity.
To meet stock-exchange listing requirements.
To express a bullish management sentiment.
Regardless of the reason, though, markets tend to view splits as positive events, and a company's shares can get a short-term boost from the news. But if the company isn't a good, long-term business, it doesn't matter if its shares split, or whether you buy them before or after.
That's why we pair up stock-split announcements with the sentiments of more than 180,000 members of Motley Fool CAPS. If the best stock pickers think a company's long-term potential is outstanding, and the company is giving off bullish signals, maybe then investors should take notice.
Here is a list of stocks that have either recently split their shares or announced their intention to do so.
CAPS Rating(out of 5)
Current Share Price
Ross Stores (NAS: ROST)
Dec. 15, 2011
Sunoco Logistics (NYS: SXL)
Dec. 2, 2011
Source: Yahoo! Finance, Motley Fool CAPS.
Don't blindly buy into a split -- you still need to do some research. Use the announcement as a jumping-off point for additional research.
Black ink is the new black
When you have Macy's (NYS: M) for the first time ever opening its doors at midnight on Black Friday to lure Christmas shoppers in, you understand why Ross Stores, when issuing guidance for the fourth quarter, chose not to raise its profit outlook despite some fairly strong numbers.
Retailers across the country reported record Black Friday numbers, with ShopperTrak reporting a 6.6% increase in total retail sales to $11.4 billion. That helped Macy's score a 4.8% increase in same-store sales, an important retail metric because it shows organic growth, not increases fueled by expansion. In contrast, J.C. Penney (NYS: JCP) chose to maintain its traditional 4 a.m. store opening to start the holiday shopping season, and its comps fell 2% for the month.
Ross also had a strong November with a 5% increase in comps, beating out its own expectations of just 2% to 3% growth, but it's been putting on a bravura performance for some time now. The off-price, closeout retailer notched sales gains in the quarter of $2.05 billion, a 9% increase from the year-ago period, indicating consumers are still interested in pinching pennies where they can during the recession.
Over the past five years, through the worst of the economy's decline, Ross has seen sales grow at a compounded annual rate of 9%, but more impressively, its profits have expanded at a better than 23% compounded rate. In comparison, rival TJX (NYS: TJX) has grown sales at just a 6% pace, and earnings have widened at a 10.5% clip, less than half of Ross's rate. Yet the market assigns both companies nearly identical multiples.
CAPS member tbonci says the consumer has been conditioned to seek out bargains as a result of the recession, putting Ross Stores in a great spot to continue capitalizing on that mindset: "Consistent impressive returns. Discount retailers are becoming the new normal for many Americans, and Ross is well positioned to take advantage of the growing demand."
Add Ross to your watchlist to keep abreast of developments, and see what others are saying on the Ross Stores CAPS page.
Investing in picks-and-shovels companies is a time-honored way to profit from industries with long-term growth prospects. If the gold rush has everyone piling in, you want to be in those companies supplying them with the tools of the trade.
In that same vein, investing in oil and gas storage and transmission facilities represents a very similar opportunity. Despite the best efforts of the alternative energy crowd, we're not weaning ourselves off fossil fuels anytime soon, and a secular era of high energy costs is upon us. That's going to attract more oil and gas production, which is going to need a means of getting it from where it's drilled to where it needs to be.
Enter pipeline companies like Sunoco Logistics Partners and Kinder Morgan Energy Partners (NYS: KMP) , just two of the many well-placed investments that generate strong, stable, recurring streams of revenue. Indeed, Sunoco Logistics, a spinoff of integrated oil company Sunoco (NYS: SUN) , has increased its cash distribution for 26 consecutive quarters.
With a payout ratio of 66% and a dividend yielding 4.7%, Sunoco Logistics represents a solid performer that will generate high returns for investors throughout the period of rising energy prices.
That could be why 92% of the 156 CAPS members that have weighed in on the pipeline specialist think it will continue to outperform the broad market averages. Tell us in the comments section below or on the Sunoco Logistics Partners CAPS page why it should be a part of your portfolio, and add it to your watchlist to see if it ultimately fuels a new growth phase.
Split the difference
Head over to the completely free CAPS service and let us hear what you've got to say about these or any other stocks that you think we should split hairs over.
At the time thisarticle was published Fool contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.