Stock Split Strategy
It’s no secret that retail investors love a good stock split story. Although the impact of a split has no bearing on the fundamentals of company or an investors account value.
Companies generally hope that the sheer hype of a stock split announcement will generate media attention and consequently increase investor interest. Usually, an pending split works on traders psyche in a positive fashion, but to buy stock split stories just for the sake of a split just simply isn’t the right thing to do.
However, there is a valid reason for a company to announce a stock split, and it generally happens with rising small caps that have only been public for 1 to 3 years. Let’s just say stock XYZ has been flying, and it also has an incredible product, plus revenue growth that is off the charts. Now let’s also assume that stock XYZ has also just turned a profit and major institutions are starting to get interested.
High Growth Stock Split
Keep in mind that while hedge funds will play these thin, illiquid, volatile stocks, mutual fund companies generally shy away. Mainly because floats are too low, and a 5 or 6% position in the stock would do little to impact the percentage return of the mutual fund. But if an upcoming high growth stock split is in the works, you often see the interest of mutual fund companies perk up.
On the other hand, there are some companies like Google (GOOG:NYSE) and Berkshire Hathaway (BRK.A) that prefer to keep their share price high for not only prestige, but to limit involvement from short term traders, which consequently reduces volatility.
Stock Split Plays
In closing here are a few stock split plays that are occurring in the near term, with their ratio and payable dates:
Polaris Inds. (PII:NYSE) 2/1 forward split, pay-date is 9/12/2011
Eastman Chemical (EMN:NYSE) 2/1 forward split, pay-date is 10/3/2011
Quality Systems (QSII:NASDAQ) 2/1 forward split, pay-date is 10/26/2011
We will also be including color on upcoming stock split situations in our Stocks in Play entries.
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