- Apple and Tesla's stock are trading at a split adjusted level.
- By default, a stock split doesn't create any new value.
- Experts are mixed on what this means for investors.
Apple and Tesla deserve credit for a “smart move” at the “right time” in splitting their respective shares, Wedbush analyst Daniel Ives told CNBC. Both companies face notable catalysts in the coming months and are operating from a position of strength.
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Apple faces a potential “supercycle” ahead of its anticipated new smartphone launch while Tesla continues to expand its customer base, the analyst said. The split can be seen as a move that puts “more gasoline in the tanks” of these stocks moving higher.
‘Splits don’t create value’
A stock split in no way implies the creation of incremental value as it is akin to trading a five-dollar bill for five one-dollar bills, legendary investor Leon Cooperman told CNBC. Meanwhile, Tesla’s stock skyrocketed more than 50% since announcing its stock split versus a 4% gain in the S&P 500 index. Similarly, Apple’s stock gained 30% since its stock split announcement versus a 6% gain in the broader index.
“Everyone is talking about the splits — but the splits don’t create any value,” he emphasized.
Apple and Tesla’s stocks both soared at such fast rates to reach all-time highs at a time when the broader market isn’t showing moves that are anywhere close in scope, Douglas C. Lane Managing Partner Sarat Sethi also told CNBC. This should be “concerning” for long-term investors, especially new retail investors that are attracted to the cheaper per share price.
In the event of a selloff, the smart money may shift towards more attractively valued stocks, leaving the retail investor is going to “get hurt.”
A stock split implies that buying 100 shares of a particular company is now “more affordable” for a retail investor and the cheaper price helps with capital management, TD Ameritrade Chief Market Strategist JJ Kinahan told CNBC.
Capital management is among the top priorities for retail investors to consider and the split implies a new 100 share position “isn’t such a giant part” of their portfolio, he said.
‘Never know when the momentum ends’
Apple and Tesla’s stock showed tremendous momentum in the weeks leading up to their stock split and we “never know when the momentum ends,” Elevation Partners Co-Founder Roger McNamee told CNBC.
For some investors, McNamee included, now may be the time to cash in on profits and call an end to the ride. This is especially true as 2020 is among the worst years from a headline perspective in a generation.
“I have been reducing positions across the board simply because I want to reduce the level of risk I’m taking in the market,” he said.