1 Deal-Basement Stocks-Split Stocks to Buy a 4th Quarter Surrender Fist and 1 High Speed ​​Stocks to Avoid

Since the start of 2023, no trend on Wall Street has garnered more attention from investors than the rise of artificial intelligence (AI). But over the past eight months, the excitement surrounding stock splits in top companies has played second fiddle.

A stock split allows publicly traded companies the option to cosmetically adjust their stock price and number of shares outstanding by the same factor. The “cosmetic” aspect of splits has to do with the fact that they do not change a company’s market capitalization and have no impact on underlying operating performance.

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In 2024, just over a dozen high-profile companies have announced or completed a stock split — all but one forward-split. Forward splits are designed to reduce a company’s share price to make it more nominally affordable for retail investors. More importantly, companies that do forward splits almost always do so from a position of operational strength.

As we move into the fourth quarter, a bargain-basement stock stands out as ripe for the picking for value-seeking opportunists. Meanwhile, growth investors might be wise to be wary of another stock split that has been the buzz of the AI ​​movement.

This historically cheap split stock can be confidently called by patient investors

The single stock split making a no-brainer buy in the fourth quarter is none other than the satellite radio operator Sirius XM Holdings (SIR -4.19%).

What makes Sirius XM’s split “unique” is that it’s the only company I alluded to above that hasn’t completed a split before.

On December 12, 2023, Sirius XM revealed plans to merge with Liberty Media’s Sirius XM tracking stock, Liberty Sirius XM Group. Liberty Media is the majority stakeholder in Sirius XM, and its multiple Sirius XM tracking stock classes have always been somewhat confusing to the average investor. To add, they’ve never tracked Sirius XM stock particularly well. The merger of these share classes, which occurred after the close of trading on September 9, cleared up some confusion.

In addition to creating a single class of Sirius XM stock, the company completed a 1-for-10 reverse split following the merger. Although reverse divestments are typically adopted to avoid delisting from a major stock exchange, Sirius XM was not in danger of being delisted. Rather, its split was designed to boost its share price to make it more attractive to institutional investors and fund managers.

In addition to being the most anticipated reverse stock split on Wall Street since 2024, Sirius XM is giving investors three compelling reasons to buy its stock.

For starters, there’s a level of cash flow predictability with Sirius XM that terrestrial and online radio companies can’t match. The difference is how Sirius XM generates its revenue compared to traditional radio operators.

For terrestrial and online radio, most of their revenue comes from advertising. While this strategy works well during long periods of economic growth, it can lead to poor periods during recessions. By comparison, Sirius XM makes only about 20% of its net sales from advertising, with the bulk of its revenue (more than three-quarters) coming from subscriptions. Subscribers are less likely to cancel their service during times of economic instability than companies are to cut back on advertising spending.

The second compelling reason to buy shares of Sirius XM is its moat. As the only licensed satellite radio operator, it possesses significant power to set subscription prices. In cases where subscriber growth slows or reverses, the company has the opportunity to raise prices and increase sales.

Finally, Sirius XM’s bargain-basement valuation is very attractive. As of the closing bell on September 27, the company’s stock was valued at 7.5 times its estimated earnings per share (EPS) for 2025. Even with sales growth stagnating right now, this marks the company’s cheapest year-to-date earnings since entering the stock exchange. in September 1994.

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This split stock’s upward parabolic move looks unsustainable

However, not all stock splits are necessarily worth buying. Even though forward split companies have historically outperformed the benchmark S&P 500 in the 12 months since their split announcement, the one I’d suggest avoiding in the fourth quarter (and beyond) is the AI ​​pawn Nvidia (NVDA -3.66%). Nvidia completed its historic 10-for-1 split in June.

To be fair, Nvidia did a lot of things right. Its AI graphics processing units (GPUs) are the undisputed top choice among companies building high-computing data centers. After accounting for around 98% of AI GPUs shipped to data centers in 2022 and 2023, Nvidia appears to have ceded very little market share so far in 2024.

Nvidia also gets a lot of help from its CUDA software platform. CUDA is the toolset that developers use to build large language models and maximize the computing power of their Nvidia AI GPUs. The best way to think of CUDA is as the bait that keeps companies loyal to Nvidia’s ecosystem of products and services.

But despite these early-stage advantages, Nvidia offers a number of red flags that should give investors pause.

For example, competition is an inevitability for Nvidia. Even if the H100 and Blackwell GPUs maintain their compute edge, the extended backlog for Nvidia hardware, coupled with cheaper price points for competing chips, could cause companies to look elsewhere for their data center needs.

Domestic competition should not be overlooked either. All four of Nvidia’s top customers by net sales are developing AI-GPUs for use in their data centers. This seems to be a clear signal that America’s most influential businesses want to reduce their reliance on AI mainframe hardware.

Another reason why Nvidia’s meteoric rise is worrying has to do with what the insiders are telling us. Specifically, CEO Jensen Huang has been a persistent seller of his company’s stock since mid-June, and no insiders have bought Nvidia shares on the open market since December 2020. If insiders don’t see their stock as a bargain, of What should investors do every day?

Perhaps the biggest red flag with Nvidia is that no game-changing technology or innovation for 30 years has avoided a bubble-bursting event early in its existence. In other words, the investor community regularly overestimated the adoption/adoption of future technologies. When these high expectations fail to be met, the music inevitably stops for popular innovations.

With most companies still lacking a clear game plan on how they will generate a positive return on their AI investment, it appears we are witnessing the early stages of a bubble-bursting event. If and when the AI ​​bubble bursts, no company will be hit harder than Nvidia.