Wouldn’t it be nice to buy a stock, wait a few weeks, and have double the amount of stock you bought? Welcome to the world of stock splits. Stock splits usually put a smile on investors’ faces. It is like getting a dividend without having to worry about dividend taxes. When a stock splits, you get more stock than you originally started with and the total value of your stock actually increases. If you think stock splits are like winning the lottery and are quite rare, think again. Many public companies prefer splitting their stock to issuing a dividend. Many companies also split their stock to make their stock price even more attractive to investors. Keep in mind that no less than corporate giant Microsoft went through several stock splits since the 1980s and all those stock splits didn’t reduce the overall appeal of Microsoft. Make no mistake about it-stock splits benefit both the company splitting its stock and its shareholders.
If you are looking to buy stocks before or after split news, you should keep the following search strategies in mind. Obviously, you make more money off the stock if you bought before the stock split news. The bulk of the tips below help you to spot companies before a stock split announcement. Still, in the end, it doesn’t really matter if you buy stocks before or after split news. What matters most is how close to the split announcement you buy. In many cases, you can make money regardless of whether you buy stocks before or after split announcements. Here are just some signs to look for in companies that might be announcing a stock split in the very near future.
Look for very pricey stocks
This is crucial. The stock price of the companies you’re thinking of taking a position in must be priced high. At the very least, consider companies close to their 52 week high prices. To wisely buy stocks before or after split, you need to focus on companies whose stock prices are so high that it is worth splitting the stock price. There are many stock market software packages that will quickly sort this data for you. Look for peak 52-week pricing.
Look for companies that haven’t split yet or only split a few times
Now that you have isolated a fat list of stocks that are trading their annual high points, you have to filter them based on whether they have split in the past. Again, stock software can help you efficiently winnow this information down. When looking to buy stocks before or after split announcements, you need to increase your chances of getting into stocks that have a high likelihood of actually splitting. Companies that have never split their stock prices are ideal candidates for monitoring for potential stock split news. Still, if you are looking to buy stocks before or after split news, the mere fact the company’s stock hasn’t split yet isn’t a slam dunk. Keep reading below.
Look for companies that are market leaders
Another filter you should apply to your fast-shrinking list of stocks is whether the companies are dominant market leaders or outright number-one players in their respective markets. This information might be that easy to get but it is definitely worth chasing down because it helps you identify and buy stocks before or after split announcements. Again, you are looking for companies that basically own or dominate the vast chunk of their industries.
Look for dominant companies that are growing into other industries
The final filter you should use when looking to buy stocks before or after split announcements is whether the companies are growing into or branching out into other industries. This is a very strong sign of company health. Healthy companies tend to be less gun shy about splitting their stock price. For this piece of information, you might want to read the annual reports of the stocks you have left on your filter list.
Don’t get too caught up in timing a split
It is too easy to get caught trying to time your buy. You should not stress about timing. When trying to make money and buy stocks before or after split announcements, you should keep in mind that you can make money either way. When you buy before a split, you can enjoy the biggest gains. The market will impose a premium on the split stock and the stock is sure to get a healthy lift. However, you shouldn’t kiss your chances of trying to buy stocks before or after split announcement when this happens. You might have to enter the stock through a premium price. That’s right-you might be late to the game and buy into the stock at an appreciated or elevated price. This is not a problem if you did your homework. If you applied all the filters above, even if you buy a stock after the split announcement, you can still make money. How come? When the stock is split, it automatically becomes ‘cheaper’ for other investors and if the company is truly solid (see discussions above), you shouldn’t be surprised if the post-split price of the stock spikes up. Oftentimes, the value of a high-flying company only becomes obvious to individual and institutional investors when get an ‘incentive’ to buy in when the company splits its stock.
When trying to buy stocks before or after split announcements, you need to be methodical. You can’t simply buy stocks before or after split news and expect to make money. You have to buy into the right company. The best way to make money trying to buy stocks before or after split news is when you buy before the split and buy right through the split. Why? You lock in profits when you buy before the stock split announcement and you continue to benefit when you buy after the split announcement and the company’s stock continues to soar due to its profitability, market dominance, and other factors. Be on your toes and always focus on quality stocks. Focus on that rare group of winners that allow you to make money when you buy stocks before or after split news. Weaker companies can help you make money before stock splits but it takes a particularly rare company to allow you to make money when you buy stocks before or after split news.