Tesla (TSLA) and Apple (AAPL) have been on a roll since announcing their stock splits. Tesla is planning a 5-to-1 stock split and Apple is planning a 4-to-1 split. This will be Tesla’s first stock split and Apple’s fifth stock split.
So, what does this mean for investors?
Simply put, investors can buy TSLA and AAPL shares at lower prices, but the companies’ market caps will remain the same. Tesla’s stock, which currently trades around $1,600, will be worth about $320 per share. AAPL’s stock, which currently trades around $450, will be worth about $112 per share. All TSLA shareholders of record on August 28 will receive an additional four shares. And all AAPL shareholders of record on August 24 will receive an additional three shares.
While stock splits are a welcome sign, the reality is they benefit the company more than the investor, as a “cheaper” stock might become more attractive to investors. Remember, if you want to buy Tesla now, you would have to pony up $1,600 for just one share. Paying $320, in comparison, seems like a real steal. So, the more stock investors buy, the higher the stock goes.
As a result, the companies’ market caps also rise without having to make any new products. So, they don’t have to put in any extra effort. Companies also tend not to split their stock when doing stock buybacks; however, Apple is clearly the exception (company management recently approved a $50 billion increase in stock buybacks).
But it’s important to keep in mind that the underlying fundamentals of the company don’t change after a stock split. So, let’s see how Apple’s and Tesla’s fundamentals stack up in Portfolio Grader:
Interestingly, both Apple and Tesla earn an A-rating for their Quantitative Grade, a B-rating for their Fundamental Grade and an A-rating for their Total Grade, making both stocks “Strong Buys” in Portfolio Grader right now.
However, if you’re looking for strong growth plays, I wouldn’t jump on these stocks just yet.
Now, I’m certainly not bearish on Apple. There’s no denying that its fundamentals are solid. For the fiscal 2020 third quarter, AAPL’s earnings increased 18.3% year-over-year to $2.58 per share and revenue rose 10.9% year-over-year to $59.68 billion. Analysts were expecting earnings of $2.07 on $52.56 billion in revenue, so the company posted a 24.5% earnings surprise and 13.6% revenue surprise.
The company is also rumored to be launching a subscription bundle service, Apple One, which will allow customers to buy multiple services for a small monthly fee. It is expected to be launched along with Apple’s new iPhone 12 and iPhone 12 Pro in September or October on its iPhone Day.
But as I discussed in mid-July, there tends to be a noticeable dip the week before iPhone Day. Then, there’s a nice bullish reaction in the following week. Sometimes, that even extends through the following month. The stock is up more than 19% since announcing its stock split, so a pullback and better buying window down the road is likely.
Tesla, on the other hand, is a stock I just can’t get behind right now. First, the sales of electric vehicles (EVs) have declined in the past four quarters in China and the U.S., so Europe’s strong EV sales have been largely responsible for Tesla’s sales growth. However, in the second quarter, the company’s sales declined 4.9%, compared to the same quarter a year ago.
Yes, the company reported stunning second-quarter earnings. Adjusted earnings per share of $2.18 per share smashed analysts’ expectations for a loss of $0.16. So, the company posted a whopping 1,460% earnings surprise. Revenue was also solid, coming in at $6.04 billion, versus estimates for $5.37 billion.
But the key to Tesla’s earnings surprise was that it made $428 million in regulatory tax credits. The company’s free cash flow was $418 million in the second quarter, so virtually all its net cash flow was derived from regulatory tax credits. Further complicating its outlook, Tesla is now losing its global market share in EV sales. So, the company’s huge fan base is now hyping its lead in autonomous driving after Elon Musk promised “Level 5 autonomy” in Shanghai a few months ago.
But herein lies the rub: Automotive engineers define Level 5 as “full self-driving,” and do not consider Tesla anywhere near Level 5, since it’s not even at Level 4 yet. The experts interviewed by Automotive News stated that Elon Musk’s Level 5 allegations “border on preposterous.”
So, I think Tesla is just trying to keep its retail investors excited.
The truth of the matter is cars need 5G to be fully autonomous. Self-driving cars rely on hundreds of sensors to work. And with sensors comes a significant amount of data. Unfortunately, 4G isn’t fast enough to handle that data. Self-driving cars need data processing capabilities and speeds that give it “human-like reflexes” to prevent accidents.
In fact, there’s a lot of technology that requires 5G to take it to the next level. I’m talking about 5G smart phones (Apple is expected to jump on the 5G bandwagon with its next iPhone), the Internet of Things devices (IoT), smart cities and even surgery – just to name a few. In the U.S. alone, the 5G market is expected to be worth $58 billion in five years.
In Growth Investor, we’re already well-positioned to benefit from the burgeoning 5G trend. And, no, it’s not through a company that will depend on 5G to maintain its edge – like Tesla, Apple or a big wireless carrier. Instead, I believe the big profits will come from the companies that help create 5G.
And I’ve found just the one.
This company is much lesser known but has excellent growth prospects, as it is already one of the biggest semiconductor equipment manufacturers in the world. These days, its products for machine learning, optics, sensors and analytics are getting deployed for all sorts of next-generation technologies: the self-driving cars, robotics, cloud computing and the larger Internet of Things (IoT).
So, if that company doesn’t sound familiar to you, I’d like to change that. This is the kind of stock that can help you profit from all the 5G infrastructure that’s popping up everywhere.
I have a fresh, complete investment report on it, called The King of 5G “Turbo Button” Technology. You can secure a copy by watching my free briefing on 5G and joining us at Growth Investor today.