Stock split watch: 2 top stocks that look ready to split

Stock splits are a common way of dividing up the investment pie so that more people can buy. They don’t increase the pie or change its value, but they do imply a stock that’s in growth mode and has already wowed investors. Markets generally love them, and a stock can often jump on news of a split.

There have been plenty of major stock splits in recent years, including Nvidia and Chipotle Mexican Grill in June. What top stocks could come next? Costco Wholesale (COST -0.47%) and MercadoLibre (MELI -4.82%) they look like strong candidates.

Costco just keeps getting better

Shoppers love Costco, investors love Costco, and there might not be too many people who don’t. (Perhaps its competitors?) It has a differentiated retail model that attracts members, generates loyalty and volume, and is highly profitable.

Renewal rates have consistently been above 90% and they add millions of new members annually. Costco keeps its prices low and marks its products with small margins to attract shoppers and generate high sales, and the value it offers its customers leads to satisfaction and repeat trips. The membership fee goes straight to the bottom line, which continues to grow.

That’s been the case for years, but it’s all the more evident as they face one economic challenge after another without missing too many steps. Like other essential goods retailers, the early pandemic was a period of high growth. It managed to work its way through supply chain issues using leverage to create its own, and was ultimately challenged by inflation when sales growth temporarily slipped into the negative. But it came back and came back, and investors flocked to this trusty, dividend-paying stock.

The dividend is not the most profitable or close, but it has attracted attention with its special dividend program. It has paid a special dividend every 2.5 years on average, most recently a $15 dividend last December.

Investors have been waiting for that announcement, and Costco recently received attention for another highly anticipated update: a tax increase. It raised its annual membership fee by $5 to $65 (or $10 for executive membership) this month for the first time in seven years. That should boost the bottom line, although management says it uses the additional fee income to invest back to deliver even greater customer value.

Costco stock is a consistent market beater and is up 34% year to date. It hasn’t split its stock in nearly 25 years and has gained 2,780% since then. It’s approaching a four-figure price, which could mean it’s time for the next split.

MercadoLibre might be the best ecommerce stock you can buy

E-commerce isn’t exactly a buzzword anymore. Not only has it been around for a long time, but it accelerated during the pandemic and is completely mainstream. It is unusual at this point for any business not to have an e-commerce presence, and some businesses are all online.

MercadoLibre is an e-commerce powerhouse in Latin America and is growing at fantastic rates. While they reached triple digits at the start of the pandemic, they have stabilized in the high double digits despite a host of challenges, from inflation to building on high sales to serving economically volatile markets.

There should be a lot more on the horizon. Its region still has a high reliance on cash compared to other global regions, and e-commerce is still under-penetrated. MercadoLibre is the leading e-commerce company in most of the countries it serves and is constantly updating its platform with improvements to delivery times and membership features.

Although the e-commerce business is growing at a healthy pace, the company has launched a robust fintech business that is driving engagement and growing at even faster rates. This segment started as a way for the underbanked population to access its digital platform, but has expanded into a large financial services business with credit and investment products. MercadoLibre is even diving into banking, with its first efforts headed to Mexico.

MercadoLibre has never split its stock in its 17 years as a public company and has gained 7,380% in that time. It trades with a 4-figure price tag, which is often the reason for a stock split. Management usually explains its decision to split its stock by saying it wants to make the stock more affordable for employees to buy in a company-sponsored stock program, and four figures might be pretty restrictive.

So far, MercadoLibre hasn’t bothered with a split, but it’s looking increasingly likely.