HighFlying

Today marks a new era for the Dow Jones Industrial Average. Not only is the nearly 128-year-old index undergoing only its 52nd change with the addition of online retailer Amazon and the removal of pharmacy chain Walgreens Boots Alliance, but the Dow’s divisor (the figure that helps convert share price into Dow points) is changing due to Walmart‘s (NYSE: WMT) 3-for-1 stock split.

A “stock split” is an event which allows a publicly traded company to alter its share price and outstanding share count by the same magnitude. The important thing to note with stock splits is that they’re purely cosmetic and have no impact on a company’s market cap or operating performance.

An up-close view of a paper certificate for shares of a publicly traded company. — Image source: Getty Images.

Forward-stock splits make a company’s share price more nominally affordable for everyday investors, which can be particularly helpful for those without access to fractional-share purchases. Meanwhile, reverse-stock splits are designed to increase a company’s share price to ensure continued listing on a major stock exchange.

Walmart becomes Wall Street’s newest stock-split stock

Today, Monday, Feb. 26, Walmart enacted its 3-for-1 forward-stock split, which was first announced on January 30. Walmart CEO and president Doug McMillon noted the reasoning behind the split is to encourage employees to take part in Walmart’s Associate Stock Purchase Plan. Said McMillon:

Sam Walton believed it was important to keep our share price in a range where purchasing whole shares, rather than fractions, was accessible to all of our associates. Given our growth and our plans for the future, we felt it was a good time to split the stock and encourage our associates to participate in the years to come.

Walmart has been a prime beneficiary of an above-average inflation rate over the past two years. Walmart’s deep pockets and ability to buy products in large quantities gives it a cost and product breadth advantage that mom-and-pop shops simply can’t match. With consumers eager for a good deal, Walmart continues to draw in shoppers.

Walmart joins the select group of less than a dozen high-profile companies to have conducted a forward-stock split since the midpoint of 2021. It won’t, however, be the last widely owned or high-flying public company to declare a split. What follows are three outperformers that are likeliest to follow in Walmart’s footsteps and become the next stock-split stocks.

A person typing on a laptop while seated inside a cafe. — Image source: Getty Images.

Meta Platforms

The first logical candidate to become Wall Street’s next stock-split stock after Walmart is none other than social media company Meta Platforms (NASDAQ: META). Meta hasn’t split its stock since going public in 2012, and its share price neared $490 less than two weeks ago.

Meta’s long-term success is a function of three factors. To start with, the company’s social media real estate is unrivaled. It’s the parent company of Facebook, the most-visited social site globally, as well as Instagram, WhatsApp, Facebook Messenger, and Threads. Collectively, Meta’s family of apps attracted just shy of 4 billion monthly active users during the December-ended quarter. Having access to this many eyeballs is an advertisers’ dream, which is why Meta often commands significant ad-pricing power.

Secondly, investors are enamored with the company’s potential beyond advertising, which includes augmented and virtual reality devices, becoming an on-ramp to the metaverse, and its various artificial intelligence (AI) applications. Even though advertising makes up nearly 98% of Meta’s total sales, the growth potential and addressable market for the metaverse and AI is mouthwatering.

The third catalyst for Meta has always been its pristine balance sheet. For example, the company closed out 2023 with $65.4 billion in cash, cash equivalents, and marketable securities, and it generated $71.1 billion in net cash from operating activities last year alone. It has the luxury to take chances on the innovation front that few other tech-driven companies can match.

Chipotle Mexican Grill

A second high-flying stock that appears primed for a stock split of its own is fast-casual restaurant chain Chipotle Mexican Grill (NYSE: CMG). Since its initial public offering in early 2006 at $22 per share, Chipotle stock has rocketed to as much a $2,725 per share, as of roughly three weeks ago. Its sky-high share price is certainly a deterrent to investors without access to fractional-share purchases.

Chipotle’s recipe for success has long revolved around the quality of its food and its innovation. The company tends to rely on locally sourced foods and vegetables, and has pledged to use only responsibly sourced meats. What Chipotle’s management team has found is that consumers are willing to pay more if they’re given healthier food choices. As a result, Chipotle hasn’t been pinched by inflationary pressures.

To add to the above, the company has kept its menu reasonably small, which has two advantages. First, a smaller menu allows its employees to efficiently prepare meals and move lines quickly. Secondly, keeping the menu compact helps new product introductions pack more punch.

But innovation is, arguably, the real secret sauce of late. in 2018, the company introduced the “Chipotlane,” which is a drive-thru lane devoted to digital-order pickup. This further sped up the ordering process and improved operating efficiency, which is a key reason Chipotle’s bottom line continues to grow by double digits each year.

Broadcom

The third highflier that looks poised to follow in Walmart’s footsteps and join an exclusive club of stock-split stocks is semiconductor company Broadcom (NASDAQ: AVGO). Prior to Avago acquiring Broadcom in 2016 and keeping the company’s name, the original Broadcom had split its stock three times. Avago, however, never conducted a stock split. A single share of Broadcom set investors back by as much as $1,295 earlier this month.

Since the start of 2023, Broadcom’s vast outperformance of the broader market has to do with its ties to the AI revolution. In April, the company introduced Jericho3-AI, which is designed to scale connectivity to as many as 32,000 graphics processing units in high-compute data centers. With businesses practically tripping over themselves to build out AI-accelerated data centers in order to take advantage of AI solutions, Broadcom’s traditionally steady growth has turned into outsized sales growth.

However, Broadcom still generates a substantial portion of its revenue from wireless chips and accessories designed for next-generation smartphones. The move to 5G has encouraged a steady replacement cycle for smartphones and other wireless devices, which has proven to be a boon to its bottom line.

The other important factor for Broadcom is that, while tech stocks are usually cyclical, it has a presumably healthy backlog. As of July 2022, Broadcom had $31 billion in backlogged orders. Despite CEO Hock Tan not providing a recent update on the company’s backlog, the flurry of order activity surrounding AI, as a whole, suggests it remains robust. A healthy backlog means dependable and predictable operating cash flow year after year.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Sean Williams has positions in Amazon, Meta Platforms, and Walgreens Boots Alliance. The Motley Fool has positions in and recommends Amazon, Chipotle Mexican Grill, Meta Platforms, and Walmart. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.

Walmart Became the Newest Stock-Split Stock Today, and These 3 High-Flying Stocks Appear Primed for Splits of Their Own was originally published by The Motley Fool

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Over the long term, the S&P 500 has delivered an average annual return in the ballpark of 10%. When a given stock generates a return below that level it can be disappointing. That’s especially the case for growth stocks for which investors have great expectations.

Such growth stocks led the charge last year, helping the major market indexes achieve big gains. Many analysts don’t think you should look for a similar performance in the new year from all of them, though. These five wildly popular high-flying stocks of 2023 could be duds in the rest of 2024, according to Wall Street.

1. Microsoft

Thanks to a 57% return in 2023, Microsoft (MSFT 1.22%) ended the year just a hair away from becoming the most valuable company in the world based on market cap. The tech stock’s modest rise in recent weeks has allowed it to claim the title, albeit just barely.

However, Wall Street doesn’t expect much more from Microsoft. The average 12-month price target for the stock reflects an upside potential of less than 6%. The most pessimistic analyst thinks that Microsoft’s share price could fall nearly 22%.

Valuation is one key concern. Microsoft’s shares trade at a sky-high forward earnings multiple of 34.8.

2. Apple

You can probably guess which company Microsoft knocked out of the No. 1 spot. Apple (AAPL 1.55%) reigned as the largest company in the world for several years. But the stock’s 48% gain in 2023 wasn’t enough to keep it on top after losing ground a little this month.

Analysts expect Apple to continue to go neck-and-neck with Microsoft in the battle of market caps. The average 12-month price target for the stock is also less than 6% above its current price.

The main knock against Apple is its lack of growth. In its last reported quarter, the company’s revenue slipped 1% year over year. Even with services revenue reaching an all-time high, Apple simply isn’t delivering the growth that it has in the past.

3. Alphabet

Google parent Alphabet (GOOG 2.06%) (GOOGL 2.02%) is another “Magnificent Seven” stock that sizzled last year. Its shares skyrocketed 58% thanks in large part to the flurry of interest in generative AI.

Wall Street doesn’t expect Alphabet’s sizzle to completely fizzle in 2024. However, the consensus forecast is decidedly less enthusiastic than investors would like. The average 12-month price target for the stock reflects an upside potential of just over 7%.

Some investors could still be concerned about Google Cloud after Alphabet reported slowing growth for the unit in the third quarter of 2023. Others could worry that the U.S. economy won’t have the soft landing that many economists predict, which could dampen Alphabet’s advertising revenue growth.

4. Tesla

Tesla (TSLA 0.15%) wowed investors in 2023 with its share price more than doubling. The company ramped up production of its electric vehicles and launched its Cybertruck.

But Wall Street doesn’t predict nearly as big of a wow from Tesla this year. The average price target for the stock is nearly 8% above the current price. That’s not bad, but it’s a lot lower than investors would prefer. One especially bearish analyst even thinks that Tesla stock could plunge almost 90%.

Most of the analyst ratings came before Tesla CEO Elon Musk posted on X (the social media platform formerly known as Twitter) that he wants to gain around 25% voting control of the company. Whether or not Musk achieves his goal — and what it might mean for the stock — remains to be seen.

5. Eli Lilly

Eli Lilly (LLY 0.84%) is something of an outlier in this group. It isn’t part of the “Magnificent Seven.” The company doesn’t have a clear connection with AI. However, Lilly was without question a wildly popular stock last year with its shares jumping 59%.

Analysts aren’t looking for a wild performance from Lilly in 2024, though. The average 12-month price target reflects an upside potential of barely over 2%.

As was the case with Microsoft, valuation appears to be the primary issue for Wall Street with Lilly. The pharma stock’s forward earnings multiple tops 51. That’s a nosebleed level.

Is Wall Street right about these stocks?

I don’t know if these five stocks will beat analysts’ price targets or not. Wall Street could be right about the stocks’ near-term prospects. However, it doesn’t matter, in my opinion. What’s important are the long-term prospects for each company.

My view is that AI will provide a strong tailwind for Microsoft, Apple, Alphabet, and Tesla over the next decade and beyond. I think that the opportunities for Lilly’s diabetes drug Mounjaro, weight-loss drug Zepbound, and Alzheimer’s disease drug donanemab (which awaits an approval decision) put its valuation in a much more favorable light.

It wouldn’t surprise me one bit if analysts revise their price targets upward for several, if not all, of these stocks in the coming months. Whether they do or not, I predict that all five will remain wildly popular in 2024 and for years to come — for good reasons.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Keith Speights has positions in Alphabet, Apple, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Apple, Microsoft, and Tesla. The Motley Fool has a disclosure policy.