Forget Walmart: These 2 Potential Stock-Split Stocks Are Cheaper and Smarter Buys

Despite Walmart’s clear competitive advantage, two considerably cheaper top-tier businesses appear poised for stock splits of their own.

Although the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite have all reached record highs in 2024, getting to this point has been an adventure. Since this decade began, all three major stock indexes traded off bear and bull markets on a couple of occasions.

When uncertainty picks up on Wall Street, both professional and retail investors have a tendency to seek out the safety and historic outperformance of industry-leading businesses. It’s why the “FAANG stocks” have been so popular over the last decade. But for the past three years, investors have really gravitated to stocks enacting splits.

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Investors of all walks have piled into stock-split stocks

A stock split is a purely cosmetic event that allows publicly traded companies to adjust their share price and outstanding share count by the same magnitude. The key with stock splits is they have no impact on market cap or operating performance. Their purpose is to make shares more nominally affordable for investors who may not have access to fractional-share purchases with their online broker (a forward stock split), or to increase a company’s share price to ensure continued listing on a major stock exchange (a reverse stock split).

Though there are a few examples of successful reverse stock splits, such as online travel company Booking Holdings, most investors tend to focus on companies enacting forward stock splits. That’s because companies enacting forward splits are usually highfliers with well-defined competitive advantages.

Since the midpoint of 2021, close to a dozen top-notch businesses have conducted forward splits, including the infrastructure backbone of the artificial intelligence (AI) movement, Nvidia; leading global internet search engine parent Alphabet; and North America’s top electric vehicle manufacturer, Tesla.

Thus far in 2024, two exceptionally successful businesses with well-defined competitive advantages have joined the club:

Despite its competitive advantages, investors can leave Walmart on the shelf

Walmart kicked things off in late January when it announced plans to conduct its first split since March 1999.

Walmart President and CEO Doug McMillon noted in a company press release that, “Given our growth and our plans for the future, we felt it was a good time to split the stock and encourage our associates to participate in the years to come.” Specifically, this move should help over 400,000 associates purchase whole shares of Walmart stock, rather than fractional shares.

If there’s one factor that exemplifies why Walmart has been such a phenomenal investment for decades, look no further than its size. Walmart’s deep pockets allow it to buy products in bulk, which in turn lowers its per-unit costs. The company has consistently been able to undercut grocery chains and local retailers on price.

To add, Walmart almost always carries a broader assortment of goods, including groceries, than traditional grocers and retailers. A generally cheaper and broader selection has been a winning formula.

But even winners have their limits.

Following its post-split run-up, Walmart stock is now valued at 23 times forward-year earnings. Though this is more or less right in line with its forward-year earnings multiple over the last five years, it’s a reach for a company whose growth rate is slowing and struggling to outpace the prevailing rate of inflation.

In fiscal 2024 (Walmart’s fiscal year ended on Jan. 26, 2024), consolidated sales rose by just 4.9% on a constant-currency basis, which excludes any gains or losses from foreign currency conversion. In the current fiscal year, Walmart’s constant-currency sales growth is expected to slow to just 3% to 4%. Mind you, the trailing-12-month inflation rate in the U.S. is 3.2%. Walmart is simply treading water in the current climate.

While long-term investors in Walmart should be just fine, there are other potential stock-split stocks that are considerably cheaper and smarter buys.

A person wearing gloves and a full-body coverall who's closely examining a microchip held in their hands.

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The first company primed for a stock split that’s markedly cheaper than Walmart is semiconductor stock Broadcom (AVGO 1.83%). Though Broadcom enacted three splits prior to being acquired by Avago Technologies (which kept the Broadcom name) in 2016, Avago itself has never undertaken any stock splits. Broadcom ended the trading session on April 2 at nearly $1,339 per share.

At the moment, Broadcom is being fueled by the AI revolution. The company’s Jericho3-AI chip, which was unveiled last April, is designed to scale connectivity in high-compute enterprise data centers and can connect up to 32,000 graphics processing units. This is just the type of innovation needed to train large language models and power generative AI solutions.

But Broadcom has fallbacks that extend well beyond AI. For example, it’s a leading provider of wireless chips and accessories used in next-generation smartphones. Carriers upgrading their networks to support 5G download speeds have provided Broadcom with steady demand as businesses and consumers replace their older wireless devices.

To add to the above, Broadcom has other operating segments that benefit from increased digitization. For instance, the company’s automotive solutions address everything from advanced driver assistance systems to battery management in next-generation vehicles. Meanwhile, it offers financial services software and infrastructure designed to improve the digital banking experience for consumers and employees.

While Broadcom’s forward-year price-to-earnings (P/E) ratio of 23.5 is effectively in line with Walmart’s, its estimated annualized earnings growth rate over the next five years of 14.4% is considerably higher. Thus, Broadcom’s price/earnings-to-growth ratio (PEG ratio) is far more attractive than Walmart’s.

Meta Platforms

The second potential stock-split stock that makes for a considerably cheaper and smarter buy than Walmart is none other than social media maven Meta Platforms (META 1.88%). Meta hasn’t split since becoming a public company in 2012 and recently hit an all-time high of a little north of $520 per share.

If you’re wondering what makes Meta “tick,” take a closer look at its social media assets. Facebook is the most-visited social site globally, with 3.07 billion monthly active users (MAUs) in the December-ended quarter. Adding in Meta’s other exceptionally popular platforms, including WhatsApp, Instagram, Threads, and Facebook Messenger, brings the company’s unique MAU count to 3.98 billion for the fourth quarter. It’s not difficult to attract advertisers and command strong ad-pricing power when more than half of the world’s adult population is visiting at least one of your owned assets each month.

Another reason Meta is such an amazing company is its cash generation. Last year, it generated $71.1 billion in net cash from its operations and closed out 2023 with $65.4 billion in cash, cash equivalents, and marketable securities. This war chest gives it plenty of financial flexibility with regard to acquisitions and innovations.

Meta Platforms is also attempting to become a leader in augmented reality (AR)/virtual reality (VR), with a longer-term goal by CEO Mark Zuckerberg to be a key on-ramp to the metaverse. Though the company’s investments in its Reality Labs segment are probably years away from being a meaningful percentage of total sales, Meta looks well positioned to be a leader in AR and VR.

Lastly, the valuation is extremely compelling when placed side-by-side with Walmart. While Meta’s forward P/E of 21 might not sound like that much of a discount, its annualized earnings growth rate over the coming five years is expected to be 26%! This works out to a PEG ratio of less than 1, which signals a potentially undervalued stock-split candidate.

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