One of the problems
confronting investors at this stage of the recovery has been the
extraordinarily high share prices of several blue chip companies. Institutional favorites like Google (GOOG)
and Apple Inc. (AAPL) are priced above $500/share, putting these stocks out of
reach for many investors. Even
institutional investors have shown diminished interest in AAPL this year,
according to research reports. That
trend may be about to change, however, if Wednesday’s news is any indication.
Apple announced a 7-for-1
stock split which was greeted with enthusiasm on Wall Street. This will mean that its share price will be
significantly reduced, allowing for more investors to buy in at what many
analysts deem to be reasonable prices.
In the days and weeks immediately following a split the price of the
splitting stock sometimes declines before bottoming and eventually rallying to
new highs. Historically, though, stocks
tend to outperform in the 2-3 years following splits.
Stock splits tend to be
popular as a bull market matures, attracting more investors while at the same
time keeping stocks within reach of smaller investors.
[Excerpted from the June 4
issue of Momentum Strategies Report]
