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The Split That Makes Me Want More

June 20, 2014 | About:
Jeff Auxier

The Dividend Guy Blog

10 followers

About 6 months ago, I wrote about how stock splits are more a marketing strategy than anything else. In fact, the real stock value doesn’t change and the individual investor who cares about buying a stock at $30 instead of $90 after a split 1:3 won’t affect much the market. After all, institutional traders (banks, insurance companies, financial firms and pension plans) are the real players in this market. How can you and I influence the stock market when one player can buy $10M worth of shares in a month?

On the other hand, Eric from The Passive Income Earner, brought up a good point: stock splits make DRIPs easier for small investors. Since the stock price is smaller, it makes it easier to buy the next share.

The most recent Apple (AAPL) split made me reconsider my dividend holdings. Not necessarily because I think the AAPL split makes the stock more interesting, but because reading about it gave me a trade idea. After all, stock splits are a great marketing strategy: I would have not read about Apple last week and I would have not thought of adding more shares to my portfolio…

What Recently Happened With Apple (AAPL)

At the end of April, Apple released its most recent earnings. If you had polled analysts before AAPL released its results, they were not very excited about it. There hasn’t been any new product launches and competition with Samsung and Google is still very tough. Nonetheless, AAPL surprised the market with EPS going from $10.18 to $11.62 this quarter. Sales were also up from $43.53B to $45.6B. Apple’s biggest earner is still the iPhone and it sold 6 million more units than Wall Street anticipated. Another stock buyback was announced ($60B to $90B), the dividend was increased by 8% and there will be a stock split to make the stock more affordable.

The stock split occurred last week dividing the stock by 7. This means you can now buy AAPL for a little under $100 a share. I’m not considering adding more Apple to my portfolio because of the split but because this company seems to be back on a roll. They are still sitting on a pile of cash, growth seems to be picking up again and a new range of products is on the verge of happening. If Microsoft was able to surf on Windows for decades, why Apple couldn’t do it with its perfect product ecosystem? (going from phones to mp3 players with tablets, computers and going after TVs).

But first, I need to find money to invest in Apple…

What is Going on with Chevron (CVX)

Thanks to my new investing tool; Dividend Stocks Rock, I follow about 45 companies closely. Newsfeed and financial statements are on my desk each morning to pick up the most recent facts about all these companies. While doing my review for the last earnings season, I noticed a few things about companies I own that bugged me…

Chevron’s recent quarter wasn’t a fairy tale. Profits fell 27% as all core business segments struggled. 95% of CVX profits come from its Exploration and Production segment and this part of the business dipped 27% as well. The stock didn’t hit the bottom of the graph price because investors keep hoping on major projects that are about to go into production. The recent 7% dividend increase should be enough to keep investors waiting a little bit longer.

While CVX has always been a good dividend payer, it seems almost unfair to me to compare the growth potential of both CVX and AAPL. I know they are very different from each other in terms of sector and business models, but as an investor, I’m looking after the best possible trade; period. This is why I intend to sell CVX and buy more AAPL.

Rebalancing my JNJ Holdings

If I sell all my shares and go all-in in Apple, I would show about 14% concentrated in one stock. That’s a little bit too much. At the other end of my portfolio, my smallest position is JNJ. And Johnson & Johnson is rocking the market right now…

JNJ is up 9% this year and had nothing but good news for investors when posting its first quarterly results. Prescription drugs increase, profit jumps and a 2014 outlook increase as well. JNJ published a sales increase of 3.5% and a profit jump of 8%. Both results were beyond analysts’ expectations. JNJ sales were led by international sales (+10.8%). JNJ is also working on a new diabetes drug which could push the stock to higher levels.

So, in the upcoming week I will:

#1 Sell CVX

#2 Buy more AAPL

#3 Buy more JNJ

What do you think of these trades? Are you still confident in CVX?


Rating: 0.0/5 (0 votes)

Comments

jtdaniel
Jtdaniel premium member - 2 months ago

Hi Dividend Guy,

I view Apple and Chevron as two of the few reasonably-priced stocks in this market. JNJ, not so much. I own Chevron and Exxon, and consider them permanent holdings. Their business results are largely tied to oil and natural gas prices, so there will be occasional great and awful quarters. Consecutive bad quarters usually result in panic selling on Wall Street, which creates a perfect buying opportunity for an investor who thinks like a business owner. I would not trade out of a perfectly good Chevron holding to buy Apple, which is not a demonstrably superior value at prevailing market prices. No one knows which will perform better going forward. I do think that Apple would require a more intense level of monitoring than Chevron. As for Apple's stock split, my guess is that it will cause increased trading and volatility. I am only interested in quality and value, so a stock split is not an enticing factor. Best regards.

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