About 6 months ago, I wrote about how stock splits are more a marketing strategy than anything else. In fact, the real stock value doesn’t change and the individual investor who cares about buying a stock at $30 instead of $90 after a split 1:3 won’t affect much the market. After all, institutional traders (banks, insurance companies, financial firms and pension plans) are the real players in this market. How can you and I influence the stock market when one player can buy $10M worth of shares in a month?
On the other hand, Eric from The Passive Income Earner, brought up a good point: stock splits make DRIPs easier for small investors. Since the stock price is smaller, it makes it easier to buy the next share.
The most recent Apple (AAPL) split made me reconsider my dividend holdings. Not necessarily because I think the AAPL split makes the stock more interesting, but because reading about it gave me a trade idea. After all, stock splits are a great marketing strategy: I would have not read about Apple last week and I would have not thought of adding more shares to my portfolio…
What Recently Happened With Apple (AAPL)
At the end of April, Apple released its most recent earnings. If you had polled analysts before AAPL released its results, they were not very excited about it. There hasn’t been any new product launches and competition with Samsung and Google is still very tough. Nonetheless, AAPL surprised the market with EPS going from $10.18 to $11.62 this quarter. Sales were also up from $43.53B to $45.6B. Apple’s biggest earner is still the iPhone and it sold 6 million more units than Wall Street anticipated. Another stock buyback was announced ($60B to $90B), the dividend was increased by 8% and there will be a stock split to make the stock more affordable.
The stock split occurred last week dividing the stock by 7. This means you can now buy AAPL for a little under $100 a share. I’m not considering adding more Apple to my portfolio because of the split but because this company seems to be back on a roll. They are still sitting on a pile of cash, growth seems to be picking up again and a new range of products is on the verge of happening. If Microsoft was able to surf on Windows for decades, why Apple couldn’t do it with its perfect product ecosystem? (going from phones to mp3 players with tablets, computers and going after TVs).
But first, I need to find money to invest in Apple…
What is Going on with Chevron (CVX)
Thanks to my new investing tool; Dividend Stocks Rock, I follow about 45 companies closely. Newsfeed and financial statements are on my desk each morning to pick up the most recent facts about all these companies. While doing my review for the last earnings season, I noticed a few things about companies I own that bugged me…
Chevron’s recent quarter wasn’t a fairy tale. Profits fell 27% as all core business segments struggled. 95% of CVX profits come from its Exploration and Production segment and this part of the business dipped 27% as well. The stock didn’t hit the bottom of the graph price because investors keep hoping on major projects that are about to go into production. The recent 7% dividend increase should be enough to keep investors waiting a little bit longer.
While CVX has always been a good dividend payer, it seems almost unfair to me to compare the growth potential of both CVX and AAPL. I know they are very different from each other in terms of sector and business models, but as an investor, I’m looking after the best possible trade; period. This is why I intend to sell CVX and buy more AAPL.
Rebalancing my JNJ Holdings
If I sell all my shares and go all-in in Apple, I would show about 14% concentrated in one stock. That’s a little bit too much. At the other end of my portfolio, my smallest position is JNJ. And Johnson & Johnson is rocking the market right now…
JNJ is up 9% this year and had nothing but good news for investors when posting its first quarterly results. Prescription drugs increase, profit jumps and a 2014 outlook increase as well. JNJ published a sales increase of 3.5% and a profit jump of 8%. Both results were beyond analysts’ expectations. JNJ sales were led by international sales (+10.8%). JNJ is also working on a new diabetes drug which could push the stock to higher levels.
So, in the upcoming week I will:
#1 Sell CVX
#2 Buy more AAPL
#3 Buy more JNJ
What do you think of these trades? Are you still confident in CVX?
I totally agree that stock split makes it more appealing for small investors. I personally like stocks splits. Plus I noticed that usually after some time pass by after stock split, the price of shares go up and might eventually go back to before split value. I remember watching it on example of SBUX.
If you are going to sell CVX hope you have other oil producers…the sector is hot right now.
I didn’t want to invest into AAPL just because of the price. Although it doesn’t matter whether you buy just 1 share for $500 or 14 shares for $73 a share, it is psychological and it plays a role in investor’s mind. I just didn’t want to spend 600 bucks for only one share or $1200 for 2 shares. Now it looks a lot better to buy (I agree that DRIPping is a lot easier now) and there is still a potential for the stock to grow back to 500-ish level. In history, many stocks did it and grew several times after split back to their previous levels. I think, MSFT was one of such stocks. I am actually thinking on adding APPL to my portfolio.
Hey Grant,
I only have HP that does drilling. I sold HSE (husky energy on TSE) a few months ago. I’m not too convinced oil stocks will grow; they seems to have a large expense structure…
Hello Martin,
The split itself didn’t make me want more shares, it is more the fact that the company was put back on my radar from all media sources 🙂
I’m following the company for a while now, and I only see positive things.
I recently sold my AAPL. Bought it in January and the large increase up to the split was too much profit to resist. It has fallen about 5% since I sold it. I am looking for another entry point since I think it will do well long term.
I am looking to get into JNJ, but it is still a little to pricey for me here.
In terms of oil, I am also looking at COP, but that too is a little pricey yet.
Can you please share what valuation metric you used to determine J&J is a good buy? Every method I look at makes them look quite overvalued currently.
Hey Greg,
I’m in for JNJ for the next 10 years so I don’t really mind about the entry point. The price is not cheap at the moment though…
Erich,
JNJ is not cheap, I agree with you, maybe a little overvalued but I don’t really mind. I have two options: I sit on the sideline making 1% in the money market or I buy JNJ right now and sell it in 10 years or more. At first JNJ might be down (it was one of my “slowest” holding to be profitable a few years ago) but I will be cashing a 2.60% dividend in the meantime (that’s already better than the 1% from the money market!). this is why I’m doing this move.
I definitely like stock splits as well, there are those months where I can only add a small amount of money to my portfolio and when a stock im interested in is $90, I’d have $70 just sitting around after if I were to buy it. So I tend to go with a stock I can fully utilize all my money in. And who doesn’t like seeing a bigger number of shares owned any ways!?
I bought JNJ in June 2013 at 85.65$ (+ 25%) and APPL in March 2013 at 410$ (+ 62%).
I’m asking myself right now if I should reduce my participation in AAPL and sell JNJ….
JNJ was purchased to give a 8% per year for the next 15 year, so I will probably keep it. Not sure that the same logic can be apply to AAPL.
Interesting note that I purchased this week PG at $79. I had PG before and sell it at $81.50 after a 30% profit in six months. It was sell in March 2013 and money was used to purchased AAPL 🙂
I considered that the growth of PG is probably better that JNJ considering the +25% growth for JNJ during the last 12 months.