Three Relentless Shares Boasting Robust Competitive Advantages, Potentially Elevating to Wall Street's List of Split-Stock Contenders in 2025
While it's indisputable that artificial intelligence (AI) has significantly contributed to the record-breaking highs of the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite, it's equally important to recognize the impact of stock-split excitement on boosting key components within these indexes.
A stock split is a flexible tool offered to publicly traded companies enabling them to aesthetically adjust their share price and outstanding shares by an equal degree. These modifications are surface-level as they neither influence a company's market cap nor its operational performance.
Following Walmart's initiation of stock-split enthusiasm in late February, numerous leading businesses have begun to emulate this strategy. As of now, over a dozen market-dominating companies have implemented a stock split, with all but one opting for the forward variant. A forward stock split aims to make shares more financially feasible for common investors, and it's usually executed by companies distinguished by their historic successes in surpassing competitors and introducing pioneering innovations.
Given the history of outperformance by stocks that undergo a split, investors are perpetually on the lookout for promising businesses that might announce a split. Despite no definitive predictions, the following three unshakeable companies with robust moats hold strong potential to assume the status of Wall Street's next stock-split companies in 2025.
Meta Platforms
The first formidable sector behemoth poised to split its shares in the upcoming year is social media titanMeta Platforms (META -1.65%). Even though it debuted as a public company in 2012, Meta remains the only entity from the "Magnificent Seven" that has yet to split its shares. However, with shares briefly touching $600 in October, the conditions necessary for Meta's board to contemplate action have emerged.
Meta's outperformance can be attributed to multiple factors. Primarily, it boasts more daily active users than any other social media platform. During the September-ending quarter, Facebook, Instagram, WhatsApp, Facebook Messenger, Threads, and the company's other apps collectively fascinated an average of 3.29 billion active users each day! Advertisers are well-appreciated of Meta's unparalleled potential to broadcast their messages to a maximum number of users. Consequently, Meta can generally command exemplary ad-pricing power.
To strengthen this point, ad-based business models, such as Meta's, which generates approximately 98% of its revenue from advertising, gain from nonlinear economic cycles. Although recessions are typical components of the economic cycle, they're temporary. Nine times out of 12 recessions since the end of World War II have concluded in less than a year. By contrast, most economic expansions generally persist for multiple years, encouraging businesses to invest more in marketing over time.
Meta's substantial cash reserves and robust operating cash flow are critical to its success. At the end of September, the company held $70.9 billion in cash, cash equivalents, and marketable securities, having generated $63.3 billion in net cash from operations through the first nine months of 2024. This substantial cash pile enables CEO Mark Zuckerberg to take risks that other social media companies can't afford to take.
For example, Zuckerberg is actively building out Meta's AI-powered data center, while positioning his company to serve as a gateway to the metaverse.
Netflix
A second unyielding company with a robust moat apparent to be a candidate for a forward stock split is streaming juggernautNetflix (NFLX -0.72%). Since its public debut in May 2002, Netflix has performed two splits: 2-for-1 in February 2004, and 7-for-1 in July 2015. As of the closing bell on Nov. 19, shares of the company were trading at $871. This approaches the price point at which Netflix shares traded prior to its July 2015 split.
One of the main reasons Netflix has been such an outstanding investment for such a long time is its first-mover advantages in the streaming space. Whilst legacy media companies like Paramount Global and Walt Disney have been required to play catch-up due to cord-cutting, Netflix has been generating recurring profits for years. In September, Netflix concluded with 282.7 million global streaming paid memberships.
Much like Meta, Netflix enjoys substantial pricing power. As a leader in original content and offering one of the largest content libraries among digital media companies, it can charge more for subscriptions. This pricing power, coupled with the company's efforts to curb password sharing, has demonstrated improvements in its operating margin.
Furthermore, because Netflix is primarily a subscription-driven business model that does not depend on advertising like legacy media companies, it is better positioned to weather short-term U.S. economic downturns. To clarify, subscribers are less likely to cancel their subscriptions during a brief period of economic turmoil than businesses are to significantly scale back their marketing budgets.
Finally, Netflix's free cash flow has improved dramatically since the beginning of this decade. With the company generating plenty of cash flow, it can continually reward investors with a consistent stream of share buybacks and continually invest in the original content that sets it apart from other media companies.
The third potential profit monster with a substantial competitive edge, seemingly set to become Wall Street's next stock split sensation in 2025, is the warehouse behemoth, Costco Wholesale (COST, 0.10%). Costco has executed three share dividends since its public debut, with the last one happening in January 2000. Given that the company's shares have soared beyond the $930 mark on November 19, it appears only a matter of time before its board initiates a split to distribute its shares in a more budget-friendly manner for everyday investors.
One of the key elements that makes Costco an exceptional enterprise is its grandeur. It leverages its financial muscle to procure items in bulk quantities. Buying in bulk reduces the expense per item for each product, resulting in Costco being able to offer cheaper prices than most mom-and-pop shops and even large-scale grocery chains. With a handful of exceptions, Costco's cost-saving strategy resonates with budget-conscious consumers.
It's also worth mentioning that Costco fits the bill as a consumer staples stock. It focuses on supplying essentials like food and beverages, which continuously attract customers to its stores, regardless of the economic climate. Breaking into its customer base might be a mountaineering challenge, but Costco has outsmarted this hurdle quite effectively.
However, Costco's major advantage lies in its membership system. The annual membership fee, ranging from $65 to $130, contributes significantly to its profits. It also serves as a cushion, allowing Costco to keep prices lower than local stores and national grocery chains.
Lastly, the membership-based operational model of Costco encourages customer loyalty. Consumers paying an annual fee of $65 or $130 to shop at Costco are likely to consider it their go-to destination for large purchases, aiming to maximize the value of their subscription fee.
After observing the success of companies like Walmart in boosting their stock prices through stock splits, it's reasonable to assume that other financially stable companies might consider this strategy to make their shares more accessible to a larger pool of investors. Meta Platforms, for instance, with its high share price and substantial cash reserves, could potentially benefit from a stock split to make its shares more financially feasible for common investors, following the trend set by companies like Walmart. Similarly, if Netflix's share price continues to increase, investing in this company could become a more substantial financial commitment for many investors. A stock split might make Netflix shares more affordable, providing a potential opportunity for more individuals to invest in this prosperous streaming platform.
