We know stock splits mean absolutely nothing. They create no value. They are artifice, sleight of hand, alchemy even.
And they are among the most important tools in the bull's arsenal if we are going higher. They are central if we are to power higher though these exalted levels.
Let me explain.
Individual investors pretty much deserted the stock market years ago. They decided pretty much en masse, after the brutal losses of 2000 and the incredible declines in the 2007-2009 period, that stocks simply weren't worth the bother. Every time they beckoned in, something would go wrong, a flash crash of 2010, and finally the mini crash of August 2015, where we had no idea where anything was trading, we only knew that almost the entire market fell apart from the opening and trillions were lost in the blink of an eye.
These terrible incidences where the machines, the brokerages, the Securities and Exchange Commission, the market makers, the governors, the Fed, pretty much everyone at one time or another wiped out.
But a remarkable thing has now happened in the last couple of years. The individuals, so beaten, so brainwashed into believing that they can't do better than an index fund are rising up and buying actual stocks again. They have seen that far more money can be made owning a few high quality stocks than owning a basket of 500 companies, a lot of which they don't' know, don't trust, or don't care about.
I love these people. I love them because they are enthusiastic about creating their own wealth. They weren't turned off when brilliant money managers like Ray Dalio, or Bill Ackman or Stan Druckenmiller mistakenly described an apocalypse then that didn't occur. That's amazing in itself: a revolt against billionaires who ended up taking ill-advised positions.
They weren't deterred when Warren Buffett said they were better off in index funds, even as Buffett has supported Coca-Cola (KO) , American Express (AXP) , and Wells Fargo (WFC) , three of the worst performing stocks in the market, and has embraced a larger number of bank stocks that are horrible performers, too. He bought the airlines high and sold low and the only stock he has that's participating in this rally has been Apple (AAPL) . Fortunately he has enough of it to more than make up the performance of his other stocks. But you can see how the irreverent David Portnoy, aka Davey Day Trade, has commented that Omaha's octogenarian is no longer at the top of his game. It's an insult, maybe an unfair one, albeit an empirical judgment. Portnoy's a fascinating figure because he debunks every shibboleth, but has been a heck of a lot more right than the billionaires, even as he does not profess to know much beyond stocks just go higher -- again, an empirical judgment, given that he started his hilarious but open-handed big money gig when the market bottomed and sports, his true bailiwick, got shot down.
I bring up Portnoy, because he is part and parcel of the revolution, the attempt by individuals to buy the best of the best stocks, because they are the spawn of the best of the best companies. Taking individually, it's a waste of time to even talk about those brave souls who storm the dogmatic, condescending barricades. But together, with the 13 million strong Robinhoods at the vanguard -- yes they now have that many, and their fellow Little John and Friar Tuck travelers, they represent a far more powerful cadre then almost anyone cares to acknowledge.
I know about them, because they have infiltrated my Twitter feed and before we became Covid prisoners, stopped me on the street continually.
Do you know what their biggest complaint was?
The stock prices were too high.
No not the relative stock price. But the absolute. They couldn't buy enough of their favorite stocks, the stocks they knew would go higher, which, by the way, were almost always right. It's like back in the early '80s and '90s, when a generation of smart people put hundreds of dollars away and, if they were like me, made a million bucks in two decades time.
The execs were reluctant to hear their calls. First the buyers were part of the unwashed, the lumpen proletariat, immaterial. Second the big institutions loved the ultra high prices, because they paid lower commissions. If Apple does a four-for-one split, then they have to pay four times the commission, because it is figured by share. Finally, Warren Buffett, despite Portnoy's complaint, is the greatest investor of all time and he never split his stock, so why should they?
In fact, the lower dollar price crowd was so small that when Tim Cook split Apple's stock a few years ago is was ignored by the cognoscenti.
Now, though, something has happened that I think has changed things back to how they used to be when the individuals were welcomed and not being shown the door every grew years. Now Elon Musk, the genius behind the other great technology company of our time, Tesla (TSLA) , has decided to split his thousand dollar plus stock into five pieces and now the Robinhooders will have their dreams fulfilled.
Now, I am not, for a moment, suggesting that any value is created. If you split a pencil in half you don't get more pencil. If you split it in fives, you don't either. If a stock goes up on the news of a split, it's a shame because people are buying chimerical non-value.
But what happens after is important. The new cohort, the ones who have figured out that penny stocks or even stocks under $10 are not the way to go, will buy the stocks and hold them as opposed to hedge funds, who would just as soon knock a stock down as take it higher, something the execs, particularly Musk, has figured out.
I am going to be on this topic like white on rice, because this revolution must be televised, at least by me. So I am going to give you the fifteen stocks that are nuts not to split their stocks, with a quick squib about why I like them.
One, Amazon (AMZN) , foremost retailer and data dispenser of all time.
Two, Alphabet (GOOGL) , showing signs of unlocking value and if it would bring fresh entertainment and sports blood to YouTube, would be the belle of the Robinhood ball.
Three, Chipotle (CMG) , the only restaurant that seems to be making more (other than Winngstop (WING) ) during the pandemic than before because of digital prowess. The Tesla of food.
Four, Netflix (NFLX) . Duh.
Five, Nvidia (NVDA) , run by Jensen Huang, the modern day Leonardo Da Vinci in black leather jacket, an architect, an environmentalist, a food connoisseur, an accomplished artist and a brilliant technologist. This is the Intel (INTC) of our age.
Six, Adobe (ADBE) : the internet gateway, the company that can do more to harness the power of the internet for regular people than any company on earth. It's a humanitarian tech enterprise.
Seven, Costco (COST) . The best retailer on earth, which offers the most value, the lowest prices, a treasure hunt and motivated workforce. Incredibly, they demanded masks of all when no one else would do it. Leader, not a follower.
Eight, Home Depot (HD) . This is the kind of story where individuals would be saying, it was so jammed, it was so understanding of Covid and it was the best place to fix my house up, I want some. But the stock's too high. Home Depot can now reward shareholders with a split.
Nine, it was stuck in the mud because of ill-advised policies that damaged its credibility but I think Facebook's (FB) problems are now largely behind them and now they are the best friend of small business.
Finally, 10, Microsoft (MSFT) . It just made it into the plus $200 club, the cutoff of what these new investors are willing to pay. These investors love Microsoft and want in, but the stock price is now too daunting. CEO Satya Nadella can solve that with a press release.
Look there are tons of other stocks that are candidates. I wish ServiceNow (NOW) , DexCom (DXCM) , United Health (UNH) , Clorox (CLX) and Shopify (SHOP) would split their stocks. but those aren't moth to flame equities with the exception of the latter, a Canadian giant that's knocking on the door of the thousand dollar club, all of which must be persuaded to split.
I know what I say is heresy. But in 1983 when I got to Goldman Sachs (GS) it was gospel. Maybe it can be something in between, but now you have the 10, I will goad and push and annoy until they figure out that Tim Cook and Elon Musk, the two best execs in America, have paved the way to welcome back the individual investor to the greatest wealth creator of all time, the stock market.
( COST, AMZN, NDVA, GOOGL, FB, MSFT, GS, and AAPL are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)
