2 Magnificent Stock Splits to Buy Hand Over Fist in September and 2 That Are Priced for Perfection and Worth Avoiding

Move over, artificial intelligence (AI)! Wall Street has a hot new trend, and its name is stock split euphoria.

A stock split allows publicly traded companies the ability to adjust their stock price and number of shares outstanding by the same magnitude. However, these changes are purely superficial and do not affect a company’s market capitalization or its operational performance.

Image source: Getty Images.

Since the beginning of 2024, 13 outstanding companies have announced and/or completed a stock split, including (all are forward stock splits unless otherwise noted):

Among these top split stocks are two magnificent, cheap companies that are begging to be bought in September, as well as two stocks that are priced to perfection and should be avoided.

The action divided into actions no. 1 to buy out of hand in September: Sirius XM Holdings

The first phenomenal stock you can confidently pick up in September is the only company among the 13 listed above that will do a reverse stock split: satellite radio operator Sirius XM Holdings.

While most companies that do reverse splits do so from a position of operational weakness, that is not the case with Sirius XM. Its roughly 3.85 billion shares outstanding have kept its stock in the mid-single digits for a decade, which could be a deterrent to some institutional investors who see the low share price as too risky. This reverse split will occur following Sirius XM’s merger with Liberty Media’s Sirius XM tracking stock, Sirius XM Liberty Group in just over a week, and the stock is likely to be more attractive to big-money investors.

What investors get with Sirius XM are easily identifiable competitive advantages. For example, it is the only licensed satellite radio operator in the country, which gives it substantial power to set subscription prices.

Sirius XM also generates its revenue differently than terrestrial and online radio providers. Instead of relying almost exclusively on advertising, as traditional radio companies do, Sirius XM generated 77% of its net sales from subscriptions through the first half of 2024. People are much less likely to cancel their service during of economic turbulence than companies. must cut back on marketing budgets at the first sign(s) of trouble. In other words, Sirius XM is better positioned to navigate uncertain economic climates.

A forward price-to-earnings (P/E) ratio of less than 10, coupled with a 3.4% dividend yield, makes Sirius XM stock a bargain for opportunistic long-term investors.

Divided stock no. 2 to buy with confidence in September: Sony Group

The other magnificently split stock begging to be bought in September is none other than Japan’s Goliath Sony Group. Sony’s American Depositary Receipts (ADRs) are set to undergo a 5-for-1 split on October 8.

Even though we’re approaching four years since Sony introduced the PlayStation 5, and it’s perfectly normal to see game console sales decline at the end of the cycle, Sony has found a few ways to boost one of its top revenue streams.

For example, it is raising the price of the PlayStation 5 by about 19% in Japan to counter the difficult economic conditions. It is also seeing strong growth in subscription sales from PlayStation Plus, which allows subscribers to play games with their friends and store game data in the cloud.

Although best known for gaming, the Sony Group is a diverse company. It is one of the leading suppliers of image sensors used in smartphones. As telecommunications companies upgrade their wireless networks to support higher download speeds, consumers and businesses have been steadily replacing their old devices with new ones that are 5G capable. The 5G revolution is giving a healthy boost to Sony’s Imaging and Sensing Solutions segment.

A forward P/E of 16 is a fair (if not cheap) price to pay for an awesome company that will probably introduce a new game console in about two years.

Image source: Getty Images.

First split stock to avoid in September: Nvidia

However, not all stock splits are worth buying. Even though Nvidia has been the hottest megacap stock on the planet since the start of 2023, and its H100 graphics processing unit (GPU) is the preferred choice in AI-accelerated data centers, there are too many potential red flags to ignore .

A point I’ve been trying to drive home for months is that there hasn’t been an innovation, technology or trend that has escaped an early stage bubble burst event in 30 years. This is a nice way of saying that investors always overestimate how quickly new innovations/technologies are adopted by consumers and businesses.

The simple fact that most companies don’t have a defined game plan for their AI data center investments strong suggests we are witnessing the next in a long line of AI bubbles. If and when the AI ​​bubble bursts, I would expect Nvidia stock to be crushed.

Competitive pressures can no longer be ignored either. Advanced microdevices is ramping up production of its MI300X AI-GPU, which is substantially cheaper than the H100 and doesn’t face the same supply chain constraints as Nvidia’s chips.

Beyond external competition, Nvidia may lose valuable data center space from its top customers. The four members of the “Magnificent Seven” that account for about 40 percent of Nvidia’s net sales are developing their own AI chips. Even with Nvidia’s H100 and Blackwell chips almost certainly clinging to their computing advantage, we’re seeing a concerted effort by America’s most influential companies to reduce their reliance on Nvidia hardware.

Nvidia’s sequentially declining adjusted gross margin suggests we’ve witnessed the peak of Wall Street’s latest hot trend.

Second split stock to avoid in September: MicroStrategy

The other split stock in the 13 to avoid in September is AI-inspired enterprise analytics software company MicroStrategy.

Although MicroStrategy is technically a software company, almost all of its $27.2 billion market cap (as of this writing, August 27) is derived from Bitcoin (BTC 0.83%) hold As of July 31st, MicroStrategy held 226,500 bitcoins, which is more than 1% of the entire supply that will ever be mined. MicroStrategy also becomes the largest corporate holder of the world’s largest cryptocurrency.

There are plenty of ways to bet on Bitcoin if you’re a crypto optimist. However, buying MicroStrategy stock is arguably the worst possible way to do this. With Bitcoin trading at $59,338 per token at the time of writing, MicroStrategy’s Bitcoin portfolio is worth $13.44 billion. However, its market cap of $27.2 billion (putting a software segment fair value estimate of around $1 billion), implies a value of around $115,650 per token. Investors pay a 95% premium for its Bitcoin assets, which it does meaningless.

Another reason to avoid MicroStrategy has to do with how the company funds its Bitcoin purchases. With minimal positive operating cash flow generated by its software segment, CEO Michael Saylor oversaw a series of convertible debt offerings to finance his Bitcoin acquisition. If Bitcoin were to enter a steep bear market, as it has several times over the past decade, MicroStrategy could struggle to meet its debt obligations.

Ultimately, I am not convinced that Bitcoin is in any way superior in the crypto arena. Its lack is based on lines of computer code that could theoretically be changed with community consensus. Most importantly, Bitcoin’s payment network is nowhere near the fastest or cheapest. It is a first-change network that has been overtaken by third-generation blockchain networks. MicroStrategy tying its future to Bitcoin seems like a mistake I would suggest it avoids.