The first half of the year saw numerous stock split announcements across all sectors from the tech giant. Nvidia (NASDAQ: NVDA) to consumption stock WalmartThese companies initiated splits to lower the price of their shares after their shares reached high levels – the idea is to make it easier for more people to invest without resorting to fractional shares.
These players helped drive the S&P 500 Shares rose in the first half as investors welcomed news of the stock split. Stock splits are not catalysts for stock performance, however, because they are just mechanical moves. So, investors who take the opportunity to buy usually do so for a fundamental reason, such as confidence in the company’s future growth prospects.
As we enter the second half of the year, you may be wondering which stock split players could continue their run and represent the best long-term bets. Let’s look at one stock to buy and one to avoid like the plague.
Stock to buy: Nvidia
Nvidia has already soared more than 150% in the first half of the year on the back of its booming artificial intelligence (AI) business. The company sells the graphics processing units (GPUs) that perform some of the most crucial AI tasks — and Nvidia’s GPUs are the fastest on the market. So it’s no surprise that the company has 80% of the AI ​​chip market.
The tech giant also sells a wide range of AI-related products and services, including enterprise software, available from all public cloud service providers. This makes accessing Nvidia very easy for potential customers.
This has allowed the company to generate record revenues quarter after quarter, increase its revenue and net income by triple digits and expand its gross margin. In the most recent quarter, revenue reached $26 billion and gross margin was more than 78%, compared to about 64% a year ago.
What makes me so optimistic about Nvidia for the second half of the year and beyond? The company is committed to updating its most powerful chips every year, a strategy that should help it stay ahead of the competition. As part of that, Nvidia plans to launch its Blackwell architecture and chip later this year, a system with a host of innovations that could make it a game-changer.
All this means Nvidia deserves its 46x valuation forecast profit estimatesand the stock’s gains this year and into the future may be far from over.
Stock to Avoid: Chipotle
First of all, I’ll start by saying Chipotle Mexican Grill (NYSE:CMG) is not necessarily a sell or avoid for every investor. This fast casual chain has gradually increased its profits over time, and its expansion strategy is expected to continue this trend. Chipotle’s brand strength can also help it grow revenue in the long run. So if you are looking to diversify your portfolio and want to buy strong restaurant stockyou may consider adding a few shares, or if you are a Chipotle shareholder today, you may want to maintain your position.
But for the value investor, Chipotle is a stock to avoid, and here’s why. The stock trades at 59 times forward earnings estimates, an extremely high number for the industry and high considering the source of Chipotle’s growth. It’s important to note that comparable restaurant sales growth has been in the mid-single digits — up 7% in the first quarter of this year and 7.9% for all of 2023. So Chipotle’s growth is coming primarily from adding new restaurants — the company opened 271 last year.
Chipotle, which now has about 3,500 locations, has a goal of doubling that number to 7,000 in North America, and the company is also expanding internationally. It’s all well and good to grow through expansion, but without stronger comparable sales growth, Chipotle doesn’t seem like a high-growth stock today, even though it’s trading at growth-stock prices.
Of course, over time, Chipotle stock could still have room to run as the company’s new locations begin to grow revenue. But, given this stock’s high price, as we enter the second half of the year, value investors should avoid this expensive player like the plague.
Should you invest $1,000 in Nvidia right now?
Before buying Nvidia stock, consider this:
THE Motley Fool Stock Advisor The team of analysts has just identified what they believe to be the 10 best stocks Investors Should Buy Now…and Nvidia Wasn’t One of Them. These 10 Stocks Could Deliver Monstrous Returns in the Years to Come.
Consider when Nvidia I made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $757,001!*
Securities Advisor provides investors with an easy-to-follow blueprint for success, including portfolio construction advice, regular analyst updates, and two new stock picks each month. Securities Advisor the service has more than quadrupled the return of the S&P 500 since 2002*.
*Stock Advisor returns June 24, 2024
Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Chipotle Mexican Grill, Nvidia and Walmart. The Motley Fool has a disclosure policy.
1 Fractional Stock to Buy in the Second Half of the Year and 1 to Avoid Like the Plague was originally published by The Motley Fool
