AVGO splitted - Will It Fly This Week?
Do Not Panic.
Do not panic when you see what appears to be a huge decline in $Broadcom(AVGO)$ share price when stock market opens for trading on Mon, 15 Jul 2024.
This is because the giant semiconductor maker conducted a 10-for-1 stock split following the market close on Fri, 12 Jul 2024.
Yes, this is the season for forward stock splits with notable companies having undergone similar exercises:
$NVIDIA Corp(NVDA)$ (7 Jun 2024).
$Chipotle Mexican Grill(CMG)$ (26 Jun 2024).
Broadcom (AVGO)$ - 12 Jul 2024.
Even $MicroStrategy(MSTR)$ is getting into similar action on 07 Aug 2024, after market closed.
The "decline" of Broadcom stock price will be the equivalent of dividing one piece of pizza into 10 slices.
The slices are smaller, but there's just as much pizza to enjoy.
With pizza, though, there's no chance that the smaller slices will miraculously grow larger.
For Broadcom though, it just might be a different story.
Will the stock soar after its 10-for-1 stock split?
Here's what history has shown.
Murky Split History
Has Broadcom split its shares in the past? Yes & No. Huh ?
It depends on which Broadcom is being discussed.
Confused? Fret not, here’s the skinny.
The Original.
Founded in 1991, Broadcom IPO in April 1998 on NASDAQ under the ticker "BRCM.
Less than a year later, Broadcom conducted a 2-for-1 stock split on 18 Feb 1999.
It celebrated its stock split anniversary with another 2-for-1 split on 14 Feb 2000.
It then went into hibernation until 6 years later when it went for a 3-for-2 split again on 22 Feb 2006.
Up until this point, isn’t this reminiscent of $Tesla Motors(TSLA)$ antics with regards to its own stock splits history?
The New.
In 2016, company Avago acquired Broadcom.
The company retained its ticker "AVGO" but assumed the Broadcom name, along with the acquisition.
And Avago had never conducted a stock split.
Since 2016, the "new" Broadcom had not split its stock.
Old Broadcom - 3 Splits Performance ?
How did the "old" Broadcom stock perform after its 3 stock splits? Let’s dive in further.
Following the first split (February 1999), Broadcom's shares rose modestly, then fell. (see above)
And the stock skyrocketed throughout the rest of 1999, thanks to the dot-com boom in full swing.
“Thanks” to the huge gains, it led Broadcom to undertake its second split a year later.
Post split, the stock again moved higher and then declined. By the end of the year, though, Broadcom's share price was significantly lower as the dot-com bubble burst.
It was a similar story with Broadcom's 3-for-2 split in February 2006. Shares rose for a few days after the split, then gave up the gains.
By end 2006, Broadcom stock had fallen by nearly -30%.
“New” Broadcom.
Is there any reason for investors to expect better results with Broadcom's impending 10-for-1 stock split?
Yes, there is.
First and foremost, Broadcom the company definitely performed “better” under the Avago Management.
Its stock price movement is the direct opposite of the “original” company ie. started modest and just kept growing sustainability.
Broadcom “real” takeoff was around May 2023 (see above), when artificial intelligence gained traction, 6 months after OpenAI unveiled ChatGPT to the world in November 2022.
The rest, like they say is history.
Readers and investors alike - will need to take a broader view of the company, by looking at the historical performance of more stocks conducting stock splits.
What the Expert Say?
Bank of America's Research Investment Committee has performed a detailed analysis of all stock splits dating back to 1980.
The team found that stocks rose by an average of +25.4% in the 12 months following after a stock split announcement.
By comparison, the S&P 500 rose by an average of only +11.9% over the same period.
Applying the distilled logic - Broadcom stock has risen roughly +17% since announcing its stock split on 12 Jun 2024.
This implies there is room for it to run to reach the general historical average gain.
However, there is a catch to consider (and there always is).
The bank’s committee also found that since 2010 - stocks conducting splits have delivered lower average gains of +18.3% in the 12 months following the stock split announcement.
This more recent history doesn't give investors much to hang their hats on with Broadcom.
Other Factors To Consider.
Motley Fool writer - Keith Speights think:
The smarter approach is for investors not to pay attention to Broadcom's stock split.
Focus instead on the company's long-term prospects.
Good news — there are better growth drivers for this chipmaker.
Broadcom’s Vantage Points.
Broadcom's acquisition of VMware is already contributing significantly to its revenue growth.
Demand for the company's artificial intelligence (AI) accelerators is also surging.
Both factors will continue to push Broadcom's revenue & earnings higher.
My viewpoints: (mine only)
How will Broadcom perform post split, this week?
I think it will perform fairly well, looking at the factors below.
(1) Cooling Inflation.
On Thu, 11 Jul 2024 when June’s 3.3% core CPI (YoY) was released, it came in better analysts’ consensus of a status quo from May’s data (3.4%).
US market had a knee jerk reaction to the set of “good” data and fell.
After a day of mull over and digestion, think Wall Street analysts realized there are reasons to celebrate. They did, a day after.
(2) Positive Sentiments.
On Fri, 12 July 2024 US market’s rally was broad-based, with most members of the major indexes closing higher.
Notably, the Dow managed to scale to a new high above 40,000, intraday.
That said, stocks lost some momentum in the final half-hour of trading, but still closed solidly higher for the week.
Lingering positive sentiments should filter through the weekends and form the inertia need to start off US market on a “positive” note on Mon, 15 Jul 2024.
Pre-market Indicators will continue to evolve base on Latest News development
This is consistent with US-pre market indicators for Monday. (see above)
One thing worth noticing is — “Overall trading volume remains light, suggesting a lack of strong conviction in the market.”
In summary, the market’s reaction to the CPI report on 11 Jul 2024 was surprising, but Friday’s positive closing suggests resilience.
(3) Other Earnings Rub Off Effect.
As quarterly earning season kicks into high gear, if mega cap companies’ earnings continue to exceed analysts’ consensus, the positive vibes will definitely have a positive rub off effect on US market, this week.
This include:
Goldman Sacs (GS) - 15 Jul 2024.
HDFC Bank (HDB) - 15 Jul 2024.
BlackRock Inc (BLK) - 15 Jul 2024.
UnitedHealth Grp (UNH) - 16 Jul 2024.
Bank of America (BAC) - 16 Jul 2024.
Morgan Stanley (MS) - 16 Jul 2024.
ASML Hldgs (ASML) - 17 Jul 2024.
Johnson & Johnson (JNJ) - 17 Jul 2024.
Taiwan Semicon (TSM) - 18 Jul 2024.
Netflix (NFLX) - 18 Jul 2024.
Novartis AG (NVS) - 18 Jul 2024.
American Express (AXP) - 19 Jul 2024.
Looking back, market's reaction to the CPI report on 11 July was surprising. Friday's positive closing suggests resilience. Hope runs high for another positive week.
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Do you think Broadcom will trend higher this week, ignoring overall positive sentiments ?
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AVGO holding ok
compared to similar names...most down 1.5% to 3 %
like to a green close, considering.....
Well don’t think so. Have you be affected by the other semiconductors….
Bad looking chart set up, profit taking.. but the dip
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