In recent years, there has been a significant surge in the popularity of stock-split stocks. While stock splits do not immediately alter a company’s market value, they help enhance the stock’s liquidity by increasing the number of shares in circulation and making them more affordable for retail investors.
By countering the market perception that the stock is overstretched or inaccessible, stock splits can help enhance overall trading activity and give at least a small boost to the company’s market capitalization in the short run.
Management usually plans for a stock split when it believes the company’s share price has become excessively high. A look at a few high-quality, high-flying stocks seems to hint at the possibility of a stock split in 2024. These stocks can also prove to be good picks this year.
Broadcom
A prominent semiconductor and enterprise software player, Broadcom (AVGO -2.04%) saw its shares nearly double in 2023. The stock has continued its upward trajectory and is already 8.5% higher so far in 2024. Management may see this as an opportune time to split the stock, especially since the company is currently riding several secular tailwinds.
Broadcom’s diversified semiconductor portfolio, which includes chips for networking, storage, and connectivity, is currently in high demand in areas such as industrial automation, data centers, wireless communications, and networking. Furthermore, the increasing adoption of advanced technologies such as cloud computing, the Internet of Things (IoT), and 5G has also propelled the demand for the company’s advanced semiconductor solutions for faster data processing, improved networking, and enhanced performance.
The company is also capitalizing on the growing demand for specialized AI accelerators as well as ethernet-networking solutions from hyperscalers focusing on scaling their AI data centers. Goldman Sachs analyst Toshiya Hari has reinstated a buy rating for the company with a 12-month target price of $1,325 — driven mainly by expectations of “strong double-digit revenue growth” in the company’s AI-related custom compute and next-generation networking businesses. The analyst also expects a cyclical recovery in its core semiconductor business to benefit the company in the coming quarters.
Broadcom has also strategically expanded its presence in the software sector through the acquisition of VMware, a prominent software-defined networking and virtualization software player. The deal is expected to not only expand the company’s product portfolio, but also unfold new revenue streams and cross-selling opportunities. Finally, Broadcom is working to transition VMware’s installed base from mostly perpetual licenses to subscription-based by the end of fiscal 2024.
This, in turn, will help improve revenue predictability and visibility for Broadcom. Considering these tailwinds and the high possibility of a stock split, Broadcom seems to be a smart pick now.
MercadoLibre
MercadoLibre (MELI 3.28%), a dominant force in the Latin American e-commerce and fintech market, witnessed an 83% share price surge in 2023, despite a small correction in December 2023. Shares of the company have further gained about 10% so far in 2024 and it seems well-positioned as a candidate for a potential stock split.
The e-commerce sector in Latin America, home to 667 million inhabitants, is on a rapid ascent with e-commerce volumes expected to grow 20% annually from $509 billion in 2023 to $923 billion in 2026. With an expansive presence in 18 out of 20 Latin American countries and a strong foothold in the key markets of Brazil, Argentina, and Mexico, MercadoLibre seems poised to capitalize on this opportunity.
MercadoLibre has been quite successful in attracting new customers and retaining existing ones by offering a wide catalogue of products and services coupled with a seamless and convenient online shopping experience. The company’s strategy of expanding its seller base and brands on its platform, improving delivery speed, offering multiple financing options, and enhancing cross-border trade capabilities is helping attract even more sellers and customers.
The company’s impressive logistics network across the Latin American market has proved to be a major competitive advantage. The company is also focusing on controlling net shipping costs by improving productivity, efficiency, and scale. These initiatives have helped drive up the company’s gross merchandise volume year over year by 59%, while unique buyers grew 18% year over year in the third quarter of fiscal 2023.
Furthermore, MercadoLibre’s fintech arm, MercadoPago, is also seeing widespread adoption, as seen in a 121% year-over-year jump in total payment volume to $47.3 billion in the third quarter.
Unlike many e-commerce players, MercadoLibre is already profitable. Given the rapid increase in its user base and overall engagement across its platform, this stock may prove to be an attractive buy now — whether or not it splits.
