2 monster Warren Buffett stock-split stocks to buy right now

Investors can buy these Warren Buffett stock-split plays at attractive levels.

| More on:
warren buffett

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Legendary investor Warren Buffett may not be a fan of stock splits when it comes to some stock classes of his own company, Berkshire Hathaway, but several notable names have been going down this route recently.

A split reduces the dollar value of a company's stock and leads to an increase in the number of outstanding shares -- a purely cosmetic move as it doesn't do anything to boost the intrinsic value of a company. However, companies sometimes turn to stock splits to make the shares more attractive to a larger pool of retail investors. It is believed that the increased accessibility following a split can boost the retail demand for a company's shares, and thereby lead to an increase in the stock price.

Warren Buffett's top holding, Apple (NASDAQ: AAPL), executed a stock split in August 2020. Amazon (NASDAQ: AMZN) is another Warren Buffett holding whose stock split went into effect on June 6. Investors can still buy these stock-split plays from Warren Buffett's portfolio at attractive valuations right now. Let's see why that could turn out to be a smart long-term move.

1. Apple

Apple's 4-for-1 stock split was executed on Aug. 28, 2020. Shares of the tech giant have gained only 12% since then, barely outperforming the S&P 500.

AAPL Chart

AAPL data by YCharts

Apple's weak returns can be attributed to the broader stock market sell-off this year. However, this also means that investors who missed buying the stock after its split can still buy it at an attractive valuation following its pullback. Apple currently sports a price-to-earnings (P/E) ratio of 22.4. For comparison, it was trading at over 40 times trailing earnings at the end of 2020.

Buying Apple at this valuation looks like a no-brainer, as the company has multiple catalysts that could send the stock higher in the long run. These growth drivers include the iPhone, the services business, and Apple's potential entry into emerging technologies such as headsets and self-driving cars.

The iPhone, for instance, is dominating the fast-growing 5G smartphone market. Strategy Analytics estimates that Apple cornered a 31% share of the 5G smartphone market last year. More importantly, Apple is also enjoying robust pricing power thanks to the adoption of 5G smartphones.

That's evident from the 14% increase in the average selling price (ASP) of the iPhone last year to $825. This was well ahead of the global smartphone ASP of $322. What's more, Apple managed to boost its iPhone ASP despite increasing its share in price-sensitive emerging markets such as India, Brazil, Vietnam, and Thailand.

According to a third-party estimate, the global 5G smartphone market could clock annual growth of 123% through 2027. So it wouldn't be surprising to see the iPhone drive impressive growth for Apple in the long run thanks to a mix of higher volumes and healthy pricing driven by the rapid growth of the 5G smartphone market.

Additionally, Apple's rumored entry into potentially lucrative markets such as autonomous cars could substantially boost the company's revenue and stock price. So investors who haven't bought Apple following its split still have an opportunity to do so -- it is cheap right now and is sitting on solid catalysts that could supercharge this tech stock in the long run.

2. Amazon

Amazon stock has headed south since splitting earlier this month. It is now trading at 54 times trailing earnings, which, though expensive, is lower than its five-year average multiple of 121.

Amazon stock's decline following the split is a blessing in disguise for investors looking to buy a growth stock. After all, the company is expected to clock annual earnings growth of 40% for the next five years, which isn't surprising given the opportunities in the e-commerce and cloud computing markets.

Amazon is expected to generate $525 billion in revenue this year, which would be a 12% jump over 2021. The company's growth rate is expected to pick up the pace in 2023, with revenue expected to jump an estimated 17% to $613 billion and adjusted earnings anticipated to more than triple to $2.71 per share. Even better, Amazon is expected to sustain its growth trajectory in 2024 as well, as evident from the chart below.

AMZN Revenue Estimates for 2 Fiscal Years Ahead Chart

AMZN Revenue Estimates for 2 Fiscal Years Ahead data by YCharts

Amazon could sustain its impressive growth for a much longer time. E-commerce, which is Amazon's biggest business with 84% of its top line, is set for secular long-term growth. According to a third-party estimate, global e-commerce sales could more than quadruple by 2030 to $17.5 trillion, compared to $4.2 trillion in 2020.

Amazon is a key player in several e-commerce hotspots around the globe, so the company is in a nice position to capitalize on this market's expansion. Meanwhile, Amazon built a solid position for itself in the cloud computing market, pulling well ahead of competitors with a market share of 33%. This points toward yet another enticing opportunity for Amazon to clock incremental revenue growth, as the global cloud computing market is expected to more than double in revenue by 2026 compared to last year's levels according to third-party estimates.

So even though Amazon's stock may not have taken off following its split, investors shouldn't miss the bigger picture, as its two big growth drivers could lead to healthy upside in the long run.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon, Apple, and Berkshire Hathaway (B shares). The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Amazon, Apple, and Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

A young male investor wearing a white business shirt screams in frustration with his hands grasping his hair after ASX 200 shares fell rapidly today and appear to be heading into a stock market crash
International Stock News

5 proven investment strategies you can use to ride out a recession

Turn an economic crisis into opportunity with these investing strategies.

Read more »

A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares
International Stock News

Think you can’t afford to buy Tesla shares? Think again…

Tesla will be splitting its stock... again. Here's what we know.

Read more »

A young couple in the back of a convertible car each raise a single arm in the air whilst enjoying a drive along the road
International Stock News

Why Tesla and other EV stocks rocketed higher in July

Tesla surprised investors with better-than-expected second-quarter results.

Read more »

A man with a scrappy beard and wearing dark sunglasses and a beanie head covering raises a fist in happy celebration as he sits at is computer in a home environment.
International Stock News

5 tech stocks sending the Nasdaq higher on Wednesday

A combination of solid earnings and investor optimism has many of the year's losers seeing some gains.

Read more »

A woman in colourful outfit holds up a phone to take a selfie.
International Stock News

Why Apple stock popped today

The iPhone maker has its eye on another revenue stream.

Read more »

Happy woman on her phone while her electric vehicle charges.
International Stock News

Why Tesla shares bounced ahead of its stock-split vote

The market will find out Thursday if shareholders have approved the electric vehicle company's 3-for-1 stock split.

Read more »

A family of three sit on the sofa while watching television.
International Stock News

Netflix shares rose 29% last month, but the stock is still cheap

Here's why Netflix gained nearly 30% last month, and why the stock still has room to run much higher.

Read more »

a graph indicating escalating results
International Stock News

Why did the Nasdaq share price rocket 19% in July?

The financial stock surged on strong earnings, among other factors.

Read more »