Invest in Stocks That Split

Invest in Stocks That Split
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Stock splits might be one of the last corners of the market where emotion seems to trump logic. There’s absolutely no quantitative difference between owning 100 shares of a $20-a-share stock and 200 shares of a $10-a-share one following a 2-for-1 split. Yet, there have been 41 stock splits by companies in the Standard & Poor’s 500 over the past three years. These stocks are up an average of 33% from the time they split to Wednesday’s close — topping the Standard & Poor’s 500’s average gain of 23.6% during the same time. That means holding all the companies’ shares that have split — on average — has been a winning strategy.

Many investors attempt to find growth stocks, but how does an individual investor seek out and identify the best and brightest growth stocks for their portfolio? A savoy investor looks for specific fundamental characteristics to unearth these companies. First, growth traders look for companies that are expected to grow at an above average rate, corresponding to the market as a whole. Further, analysts look for better than average cash flows, earnings, and or revenue growth.

Can a growth stock simultaneously be a value stock? The answer to this question is yes — though, it’s an uncommon occurrence. Normally growth stocks trade at premium valuations indicative of their growth rate. However, once in a blue moon, a growth stock comes along that also has a relatively low P/E and PEG ratio (a measure of future revenue growth relative to P/E), qualifying it as a value stock as well.

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Profitable Investing Tips

Profitable Investing Tips

ProfitableInvestingTips.com is an informational website for men and women who want to discover trading & investing products and strategies and how to use them.

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