Investors love stock splits. Even though they don’t change the fundamental value of a company – they simply divide its profits among a larger number of shares – Stock distribution are seen as a powerful signal from a company’s management team that good times are ahead.
That certainly seems to be the case for two of the stock market’s best-performing stocks, both of which remain strong buys today.
Stock Split to Buy No. 1: Chipotle Mexican Grill
Proven businesses with long growth runways can be lucrative investments. Chipotle Mexican Grill (NYSE:CMG) is one of these companies.
Chipotle sustainably sources fresh, high-quality ingredients and cooks them using classic methods. The restaurant chain’s delicious dishes are then prepared to order and served quickly. Yet competitors have found this deceptively simple strategy hard to replicate. It’s as much an art as a science, and one that Chipotle has nearly perfected over more than three decades.
Many catering businesses are also facing a labor shortage. Chipotle, however, overcomes this challenge by building a reputation as a top-notch employer that treats its employees well. The fast food leader offers a career path that pays up to $100,000 in total annual compensation in just three years.
That pool of motivated employees is allowing the burrito kingpin to open new restaurants at a steady pace. Chipotle plans to open as many as 315 restaurants by 2024. Longer term, management sees room for 7,000 locations in North America, up from about 3,500 stores today. That store growth target doesn’t include promising international markets like Europe and the Middle East, which also have ample room for expansion.
Additionally, Chipotle’s profit margins are increasing at its existing locations. Its same-store sales rose 7% in the first quarter, driven by higher traffic and menu prices. This helped the company’s restaurant operating margin improve by nearly 2 percentage points to 27.5%.
With its business operating at full capacity and its future promising, Chipotle has decided to reward its shareholders with a 50-for-1 stock split on June 25. Management noted that the split is one of the largest in the storied history of the New York Stock Exchange. Exchange.
Stock Split to Buy #2: Nvidia
If you are looking for a company with even greater growth opportunity, consider Nvidia (NASDAQ:NVDA)Dominant artificial intelligence (AI) hardware vendor pegs its long-term addressable market at a shocking $1 thousand billion.
Nvidia offers semiconductor vital chips for a multitude of fast-growing end markets, such as data centers, industrial automation and autonomous vehicles. Demand for its technology is in turn exploding. The chipmaker’s revenue rose 262% year-over-year to $26 billion in the quarter ended April 28. Its net profits rose an even more astonishing 628% to $15 billion.
Not one to rest on its laurels, Nvidia is stepping up its pace of innovation. Management now plans to launch a new line of cutting-edge chips every year, instead of the previous two-year cadence. CEO Jensen Huang believes that will help keep competitors like Advanced microsystems And Intel to the bay.
Nvidia’s CUDA software is another powerful competitive advantage. The company’s platform is installed on hundreds of millions of computers worldwide. Perhaps more importantly, more than 5 million developers are trained to use the software to accelerate thousands of computer applications. The time and money spent to acquire these skills would make it costly for developers—and the companies that employ them—to switch to another platform.
With its competitive position secure, Nvidia chose to reward its shareholders with a 10-for-1 stock split on June 7. And with a long runway for expansion still ahead, shares of the tech titan remain a solid buy today.
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Advanced Micro Devices, Chipotle Mexican Grill and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a position in Advanced Micro Devices, Chipotle Mexican Grill and Nvidia and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. disclosure policy.
The Best Fractional Stocks to Buy Right Now was originally published by The Motley Fool
