Stock GOOG: With Alphabet, look beyond its stock split
- There has been considerable buzz around a possible positive impact of Alphabet (GOOG) next stock split.
- However, the overall direction of the market may outweigh this factor by the July 15 split date.
- Instead of buying it just to enjoy a post-split boost, buy it as a long-term investment, not a trade.
As tech rebounds from its brief stint in bearish territory, stocks in Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) also rebounded. Since mid-March, GOOG stock has rallied from $2,550 to $2,830 per share.
Besides the tech rebound, something else may be playing a role: increased buzz around the FAANG component’s plans to split its stock. Since a lower share price would make the stock more accessible to retail investors, many see it as a catalyst to send it even higher from here.
So with that in mind, should you buy now and cash in profitably when the split takes place on July 15? Not so fast. Talk of the stock split could play a role in his latest push. Yet it is the general direction of the market that currently plays and will continue to play a much more important role in directing prices.
In short, do not buy it just for this reason. Instead, look beyond that event and have a more substantial reason to add it to your portfolio.
|GOOG, GOOGL||Alphabet Inc.||$2830.82, $2819.18|
GOOG Stock and the Upcoming Split
Back in February, Alphabet, the parent company of Google and YouTube, announced plans to split its shares on a 20-to-1 basis. In other words, after the split, instead of trading at $2,830 per stock, the stock would trade at $141.50 per share.
Again, a lower stock price would make GOOG stocks more accessible to individual investors. Not only that, but it could theoretically result in it being added as Dow Jones Industrial Average making up. The former can increase the number of small investors holding stocks, moving it higher. The second, if it occurs, could lead to increased flows from index funds and other passive investment vehicles.
Factor all that in and it looks like Alphabet has something at play that, regardless of how its underlying business performs, could help push its stock price higher over the next three months or so. Again, while this is a positive driver for stocks, keep in mind that other drivers – both positive and negative – will prevail.
Specifically, the direction of the overall stock market by the aforementioned July 15 share date. Of course, this is not negative from the start. If the rebound we’ve seen since the beginning of the month continues, that, coupled with the increase in the stock split, could make this a profitable trade. But if that rebound proves short-lived and the uncertainties that have rocked the market continue, a market slowdown would eclipse the divisive madness, driving stocks down from where they are today.
Additional weakness could create a much better entry point
The rebound in GOOG stocks, tech stocks and stocks in general did not come out of left field. Instead, US Federal Reserve (Fed) Chairman Jerome Powell’s latest remarks on inflation and the Fed’s plans to combat it with interest rate hikes sparked the rebound.
By explicitly saying that the Fed planned to raise rates as aggressively as needed to bring inflation under control, Powell helped ease uncertainty around this issue. Unfortunately, this renewed optimism may prove to be short-lived.
It is much more certain that we will see interest rates rise quickly. Still, it’s unclear what this will do for the economy. If more signs point to a rate hike causing a recession while the inflation problem is unresolved, stocks could see another drop.
With that, you might not want to buy Alphabet just to trade around the split. In fact, you shouldn’t buy it for the share factor at all. Instead, the best way to approach it is as a long-term investment.
Buy it as a long-term investment, not as a trade
Buying shares now, with the intention of flipping them after the split, could prove unprofitable. Taking a slower financial approach, however, could be a decision that will ultimately pay off.
Over the next few years, even this company, despite its large size, may continue to climb steadily in price. By moving into new areas such as cybersecurity, Alphabet could see its growth accelerate, pushing its shares higher due to both increased earnings and expansion.
Whether you buy now or in the face of further weakness, GOOG stocks could produce above-average long-term returns. And those returns could make any modest post-split boost really look like small potatoes.
At the date of publication, Thomas Niel had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.