1 Invest in Affordable Stock Divided Historically,ideal for Mass Purchases in December, and 1 Debatable AI-Related Stock Dividend, Worthy of Caution in December
This year has been a fantastic one for Wall Street and investors, with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite delivering impressive gains. While the AI revolution has played a significant role, stock-split euphoria has also contributed to the rise of several market leaders.
Stock Split Mania Takes Over Wall Street
Stock splits are a tool used by publicly traded companies to adjust their share price and outstanding share count while maintaining their market cap and operating performance. Investors are drawn to forward stock splits, which make a company's shares more affordable for retail investors and employees, as they're usually undertaken by companies that are outperforming their competition.
Since 2024 began, over a dozen prominent businesses have announced or completed a stock split. The majority of these splits are forward variations, and while their financial outlooks differ, one exceptionally cheap stock-split stock and one high-growth AI stock deserve special attention as we prepare to turn the page on 2024.
Invest with Confidence in This Historically Cheap Stock-Split Stock
Despite numerous forward stock splits in 2024, the most attractive one in December is Sirius XM Holdings (SIRI). Sirius XM conducted an unusually strategic reverse split, consolidating by 1-for-10 following the closing bell on Sep. 9. This move put the company back on the radar of top Wall Street money managers, resolving a minor issue for institutional investors who won't buy stocks trading below $5 per share.
Additionally, Sirius XM merged with Liberty Media's Sirius XM tracking stock. This consolidation made for a single class of common stock and removed any confusion from the equation. But what makes Sirius XM an attractive investment goes beyond logistics.
As the sole satellite-radio operator, Sirius XM has a legal monopoly. Its subscription pricing power is a significant competitive advantage, allowing the company to stay ahead of inflation. Revenue diversity is another strength. Subscription revenues accounted for 76.5% of Sirius XM's net sales through the first nine months of 2024, making the company more resilient to economic downturns than traditional radio providers.
Lastly, Sirius XM stock is historically cheap, trading at 8 times forward-year earnings – a 50% discount to its average forward P/E ratio during the preceding five years. With a yield of more than 4%, this stock-split stock is a great buy.
A Word of Warning: Avoid This Polarizing AI Stock
While MicroStrategy may be the stock-split stock to avoid due to a strong argument against its investment case, we'll focus on Super Micro Computer (SMCI). Shares of SMCI, a customizable rack server and storage solutions specialist, were priced at around $80 before the split; however, the stock catapulted to over $1,200 per share following the company's approval of its first-ever split (10-for-1).
Super Micro Computer finds itself well-positioned to capitalize on the AI boom. Businesses actively investing in AI infrastructure are driving demand for hyperscale data centers. Super Micro's sales surged by 110% in 2024 to $14.94 billion, and Wall Street's consensus predicts sales will top $25 billion in 2025.
Yet, investors should think twice before jumping on the SMCI bandwagon. Until financial uncertainties are addressed, this high-growth AI stock should be avoided. Delayed financial reports, revenue misses, guidance shortfalls, market volatility, regulatory concerns, operational challenges, and questionable balance sheet health are all reasons to be cautious.
Before making an investment decision in Super Micro Computer, investors should scrutinize the potential risks and uncertainties.
Investors might consider adding Sirius XM Holdings (SIRI) to their portfolios, given its strategic reverse stock split and resilient business model. With a legal monopoly, strong pricing power, and diverse revenue sources, Sirius XM is trading at a historically cheap 8 times its forward-year earnings, making it an attractive investment option.
However, Super Micro Computer (SMCI), despite its strong position in the AI boom, should be approached with caution due to various financial uncertainties and potential risks, including delayed financial reports, revenue misses, operational challenges, and questionable balance sheet health.
