Apple's stock split Monday creates a good chance that the shares will outperform the broader market during the next three years, says Mark Hulbert, editor of Hulbert Financial Digest.
The 7-for-1 split is just an accounting maneuver so that small investors can more easily purchase shares. The company's market capitalization doesn't change: each new share was split off at a value of one-seventh of an old share.
But several academic studies show that the stocks of companies that split their shares outperform the broader market going forward,
Hulbert writes in an article for MarketWatch.
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David Ikenberry, dean of University of Colorado's business school, and two co-researchers found that the average split stock beats the broader market by 7.9 percent in the year following the split announcement and by 12.2 percent in the following three years, Hulbert notes.
"In effect, therefore, stock splits are a signal from management that they have confidence in the continued appreciation of their companies' shares," Hulbert argues.
Meanwhile, Neil MacNeale, editor of the "2-for-1" investment newsletter, chooses a stock that has recently split its shares each month and holds it in his model portfolio for 2 1/2 years.
Since late 2000, the portfolio has generated a 10.3 percent annualized return, creaming the Wilshire 5000's 4.9 percent return, according to Hulbert.
But historically Apple's stock splits have been accompanied by peaks in the share price, according to Bob Hoye's Institutional Advisors, as cited in
Barron's.
After Apple's previous three splits — in April 1987, April 2000 and February 2005 — the stock hit a ceiling in the following three to 10 trading sessions.
Apple stock closed Tuesday at $94.25 up 55 cents in Nasdaq trading.
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