Hi! I am back with a new edition of the MSI weekly newsletter! The focus this week will be on stock splits, and why companies do them.
The week that was:
This week, Amazon(AMZN) announced a 20 for 1 stock split. A stock split means each share of a company is split into smaller pieces. The overall value of the shares remains the same. For example, a whole pizza pie is divided into 8 slices. It is still the same amount of pizza. It is just cut into smaller pieces, so the pizza will not seem as big. A stock split is like that.
The current price for Amazon is $2,910. After the stock split is in effect, the price of each share will be $145 (2,910 divided by 20). When you are buying a split stock, you are paying the same amount of money you would have paid if the stock had not been split. If you owned one share of AMZN costing $2,910 before the split, you will own 20 shares of AMZN each costing $145 after the split.
The reason companies do stock splits is to attract more investors. If a share costs $3,000, many people would look at the price and think it is too expensive. If the share costs $150, investors will think the price is more affordable, and they would rather buy that. They don't think of the fact that 20 shares will cost the same as one share that costs $3,000. Split stocks would gain more investors and possibly a higher stock price as a result.
Google also announced a 20 for 1 stock split last month. Apple and Nvdia announced stock splits last year.
Bought 4 DIS at 132.36
Disney reported excellent results a few days back, but the stock price has gone down a lot. DIS is a great long term investment, and I used the opportunity to add to my position.
Bought 3 ROST at 85.78
I bought ROST for the same reason as mentioned below.
Bought 4 V at 190.90
Visa is a blue chip company that is at a good buying price. Visa should see increased business as people are starting to go out in person. They also increased their merchant fees recently, showing their pricing power. I will soon write about pricing power.
What I am watching out next week:
Usually, during recessions, defensive companies are good to have in your portfolio. However, defensive stocks such as Unilever and Clorox are getting affected by inflation. They have to buy the raw materials for their products, and the prices of those materials increase because of inflation. It would be harder to make profits. Multinational companies such as Unilever also have exposure in Russia and Europe and are impacted by the war situation.
Some good stocks to own at the moment are discount stores like Ross Stores and Burlington Stores. They don't have to worry about spending money on raw materials, because they buy excess clothes from Macy's and Nordstorm for cheap. Covid restrictions are relaxing and people are heading back to offices and vacations, so more people are going out to buy clothes for a cheap price from ROST and BURL. Ross actually calls itself as "Ross Dress For Less"!
On March 15, the Fed will announce an interest rate hike. I will continue to keep a high cash balance, as I expect to get good deals in this market environment.
Happy investing and see you next week!