3 split stocks you can buy with confidence and hold forever

Despite bear market chatter and headline-grabbing meme stock fervor, it’s stock splitting mania that has captured the attention of the investing community in 2022.

Stock splits allow publicly traded companies to change their stock price and number of shares outstanding without affecting their market capitalization or operating performance. A forward stock split drives down a public company’s stock price, theoretically making it more affordable for retail investors who might not have access to fractional stock investing.

Image source: Getty Images.

More importantly, stock splits are seen as a sign of strength. Think of it this way: A company’s stock price wouldn’t be high enough to consider a spin-off if it didn’t execute on its business strategy and/or outpace its competitors.

More than half a dozen leading companies have announced or passed stock splits this year. But a small group of these stocks stand head and shoulders above their peers. Below are three split stocks you can buy with confidence now and hold forever.

Alphabet

The first split stock that is an ideal candidate to buy and hold forever is Alphabet (GOOGL -1.81%)(GOOG -1.62%)the parent of the Google Internet search engine and the YouTube streaming platform.

In February, Alphabet announced plans to implement a 20-to-1 forward stock split, which has since been approved by shareholders. When enacted in mid-July, it will drop Alphabet’s stock price to around $118, from its closing price of nearly $2,360 (for Class A shares, GOOGL) on last week. In turn, the number of outstanding shares of the company will increase by a factor of 20.

What has made Alphabet such an attractive title is its core search engine segment. Over the past two decades, Google has practically become a monopoly. Data from GlobalStats shows that Google controlled between 91% and 93% of internet searches worldwide over the past 24 months. Advertisers are well aware that their best chance of getting their message across to users is to market with Google. And Alphabet understands that it has exceptional pricing power thanks to its near-monopoly status in Internet search.

While internet search advertising revenue offers a fairly sustained double-digit growth opportunity for Alphabet, it’s only one piece of the company’s truly exciting puzzle. For example, YouTube is the second most visited social media platform on the planet, with 2.56 billion monthly active users. As you can imagine, this has helped boost ad revenue and subscriptions for YouTube.

Arguably even more exciting is Alphabet’s cloud infrastructure services segment. Google Cloud is currently the world’s No. 3 in cloud services market share and has steadily increased its revenue by 40-50% on an annual basis. Cloud infrastructure still appears to be in its infancy, which should provide a long opportunity for parent company Alphabet to increase its operating cash flow.

With no shortage of competitive advantages, Alphabet should have no trouble rewarding patient investors.

DexCom

A second fractional stock that investors can add to their portfolios with no intention of selling is the producer of continuous glucose monitoring (CGM) systems. DexCom (DXCM -1.38%).

In late March, DexCom’s board announced that it had approved a 4-for-1 stock split, which was then given the go-ahead by shareholders at the company’s 2022 annual meeting of shareholders in May. . On June 10, this futures split became effective, with DexCom shares ending last week below $78 per share. For context, shares were changing hands at a pre-split high of $659 in November.

The beauty of health stocks is that they are incredibly defensive. No matter how the US economy and stock market perform, people will always need prescription drugs, medical devices and health services. Just because Wall Street or the US economy is having a hard time doesn’t mean people stop getting sick. This provides a level of demand security that most other sectors and industries cannot match.

To add to this stability, DexCom helps fight a disease that continues to worsen over time. The latest statistics from the Centers for Disease Control and Prevention show that 37.3 million Americans have diabetes (8.6 million of which are undiagnosed). Additionally, an estimated 96 million American adults have pre-diabetes, which can lead to diabetes if left untreated. That’s nearly half of the adult population in the United States with diabetes or pre-diabetes, and that’s a massive opportunity for DexCom’s CGM systems.

DexCom has been the world’s number one or number two producer of CGMs for years. Although the DexCom G7 CGM System will drive its double-digit organic sales growth for the foreseeable future, multiple variants preceded the G7. In other words, continuous innovation is what continues to generate significant market share for DexCom.

Additionally, DexCom is designed as a high-margin razor-and-blade operating model. Diabetic patients buy the hardware (the “razor”) that they will use to read their blood sugar and buy replacement high-margin sensors (the “blades”) that monitor and transmit blood sugar levels to hardware devices. This is the ideal configuration to achieve operating margin expansion over time.

A parent holding an Amazon package under their right arm while their child holds an open door.

Image source: Amazon.

Amazon

The third and final split stock of 2022 that you can buy and hold with confidence forever is yet another FAANG stock, Amazon (AMZN -2.78%).

In March, Amazon announced it would straddle Alphabet’s ponytails and adopt a 20-to-1 stock split. On June 6, that split went into effect. The company, whose shares were trading north of $3,700 as recently as November, closed last week at an allocation-adjusted $116.46.

Most investors are probably familiar with Amazon because of its leading online marketplace. According to a March report from eMarketer, Amazon is expected to account for 39.5% of all online retail sales in the United States in 2022. The 14 companies immediately behind are only expected to account for 31% of the retail share. online in the United States on a combined basis. That’s how far ahead of the competition Amazon is with its e-commerce marketplace.

However, the real value of this online market is not found in overall retail sales. Rather, it’s the 200 million Prime subscribers that Amazon has signed up globally. Annual fees collected from Prime members generate tens of billions of dollars in revenue for the company’s logistics network and allow Amazon to undercut prices from physical competitors.

What investors may not realize about Amazon is that its ancillary (i.e., non-commercial) sales channels drive the bulk of its cash flow. operating. Even as online retail sales slow, higher-margin sales channels such as advertising, subscription services, and cloud services are able to fuel nearly all of the growth in earnings and revenue streams. company cash flow.

Speaking of cloud services, Amazon Web Services (AWS) is the global linchpin. It accounts for a third of global cloud infrastructure spending, according to Canalys estimates, and has increased sales by more than 30% on an annual basis.

Throughout the 2010s, Wall Street and investors willingly paid a multiple of 23 to 37 times Amazon’s year-end operating cash flow to hold those shares. But thanks to AWS, Prime, and advertising, Amazon’s operating cash flow could more than double by mid-decade, dropping its operating cash flow multiple to around 9. That’s quite a boon for a company with as many competitive advantages as Amazon.

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