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1 Stock-Split Stock to Buy Hand Over Fist in the Second Half and 1 to Avoid Like the Plague

Business

The first half of the year brought the market many stock split announcements across industries, from technology giant Nvidia (NASDAQ: NVDA) to consumer stock Walmart. These companies launched splits to lower their share prices after the shares soared to high levels — the idea is to make it easier for more people to invest without relying on fractional shares.

These players helped drive the S&P 500 higher in the first half of the year as investors welcomed the stock split news. Stock splits aren’t share performance catalysts though, as they’re just mechanical movements. So, investors who seize the opportunity to buy generally are making the move for a fundamental reason — such as confidence in the company’s future growth prospects.

Now, as we head into the second half of the year, you may be wondering which stock split players may continue their paths higher and represent the best long-term bets. Let’s check out one to buy hand over fist, and one to avoid like the plague.

Image source: Getty Images.

Stock to buy: Nvidia

Nvidia already climbed more than 150% in the first half of the year thanks to its booming artificial intelligence (AI) business. The company sells the graphics processing units (GPUs) that power some of the most crucial AI tasks — and Nvidia’s GPUs are the fastest on the market. So, it’s no surprise the company holds 80% share of the AI chip market.

The tech giant also sells a wide range of related AI products and services, including enterprise software — available through all of the public cloud service providers. This makes access to Nvidia very easy for potential customers.

This has helped the company generate record revenue quarter after quarter, grow revenue and net income in the triple digits, and widen gross margin. In the most recent quarter, revenue reached $26 billion and gross margin came in at more than 78% — from about 64% a year ago.

What makes me so optimistic about Nvidia in the second half and beyond? The company pledges to update its top performing chips on an annual basis, a strategy that should keep it ahead of rivals. As part of this, later this year Nvidia plans to launch its Blackwell architecture and chip — a system laced with many innovations that could make it a game-changer.

All of this means Nvidia merits its valuation of 46 times forward earnings estimates, and the stock’s gains this year and into the future may be far from over.

Stock to avoid: Chipotle

First, I’ll start by saying Chipotle Mexican Grill (NYSE: CMG) isn’t necessarily a sell or an avoid for every investor. This fast casual chain has progressively increased earnings over time, and its expansion strategy should keep that going. Chipotle’s brand strength also may help it lift revenue over the long run too. So, if you’re looking to diversify your portfolio and want to buy a solid restaurant stock, you may consider adding a few shares or if you’re a Chipotle shareholder today, you might want to hold on to your position.

But for the value investor, Chipotle is a stock to avoid, and here’s why. The stock trades for 59 times forward earnings estimates, extremely high 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 — increasing 7% in the first quarter of this year and 7.9% for the full year 2023. So Chipotle’s growth mainly has come from adding on new restaurants — it opened 271 last year.

Chipotle, now at about 3,500 locations, aims to double that to 7,000 in North America, and the company is expanding internationally too. It’s fine to grow through expansion, but without stronger comparable sales increases, Chipotle doesn’t look like a high-growth stock today, yet it’s trading at growth stock prices.

Of course, over time, Chipotle shares still may have room to run as the company’s new locations start adding to revenue. But, considering the hefty price tag for this stock, as we transition into 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?

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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Nvidia, and Walmart. The Motley Fool has a disclosure policy.

1 Stock-Split Stock to Buy Hand Over Fist in the Second Half and 1 to Avoid Like the Plague was originally published by The Motley Fool