CNBC’s Jim Cramer said Wednesday he expects retail investors to flock to Alphabet shares in greater numbers after Google’s parent company completes its planned 20-for-1 stock split. .
“If the geniuses at this company who know us better than we know ourselves say they’re going their separate ways, then I think we’ll end up welcoming a whole new cohort of investors into the market, ones that have been missing for decades. years: people with enough cash on hand to buy 10 shares of a $150 stock, but not enough cash to buy a share of a $2,900 stock,” the host of “Mad Money”.
Alphabet announced the stock split on Tuesday at the same time as it reported better-than-expected earnings and revenue for its fourth quarter. The plan, which requires shareholder approval, would go into effect in July. Alphabet shares jumped 7.5% in Wednesday’s session.
Stock splits are purely cosmetic and do not change a company’s underlying fundamentals, Cramer pointed out. However, the former hedge fund manager said that doesn’t mean they don’t make sense.
“Every study I’ve ever seen tells me that when stocks split, they rise sharply on announcement and stay high. I know that doesn’t make sense mathematically…but the stock market is built on emotion, not about math,” he said.
Small investors, in particular, might appreciate a drop in the price per share in real US dollars, Cramer said. As brokerage apps have introduced innovations that allow customers to buy fractional shares, Cramer said he thinks some retail investors want to hold whole shares. For those who do, Alphabet’s closing price of $2,960 on Wednesday could be out of reach, he argued.
“People who don’t want the awkwardness of fractional shares … will start buying eagerly when they finally get the chance to buy 10 shares of a behemoth stock like Google,” Cramer predicted.
Cramer also said he believes Alphabet management announced the stock split after careful consideration of its potential impact.
“Given what the brains of this company know about…consumer preferences, this is a decision that will have very wide implications. Alphabet knows you better than you know yourself – they have your search history” , said Cramer. “So if they think a 20-to-1 stock split is a good idea, they’ll be right.”
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