When a stock starts to get too expensive, investors get nervous about setting up, or adding to, a position. For a lot of investors, any stock over $100 a share seems too expensive to jump into, and thus they look elsewhere for a place to invest their money. In some ways this makes sense and in other ways it doesn’t. Whether you buy 10 shares of a $100 stock, or 20 shares of the same stock at $50 after a split, you still have the exact same ownership stake in the company. In this way, it really should not matter what the price of a stock is, you should determine how much capital you are willing to invest, and then buy as many shares as you can for the money, regardless of the stock price, or the number of shares that you are able to buy for that price. Where stock price becomes an issue is for traders that like to hedge their investments using options. Since options trade in lots of 100, to sell calls against your stock you need to have 100 shares of stock in your account. For these traders, it is very important to be able to pick up 100 shares, and therefor price is more important. In this case, stock splits are necessary, and there are several stocks that these investors would love to see split. Let’s take a look at a few.
Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.