You may never see value on the stockmarket quite like this ever again!
Right now, there are a handful of little known stocks at the most attractive levels they've been in a decade:
A Precious metals producer that's turning mine dumps into money - and it's just signed a deal to get its hands on a 150 million tonne copper opportunity in Africa
A Pharmaceutical and healthcare company that's capturing the entire value chain from medicine and PPE to medical aids, and health insurance - and even though you've probably never heard of it - it serves more clients than Discovery Health!
A niche manufacturing company that's literally DOUBLED its footprint in Europe over the last couple of years - and now its expanded with another offshore acquisition
An essential logistics provider that's paying one of the largest dividends on the JSE - whilst still growing its business year on year.
An up and coming transport company that's making big money from government's failures in the public transport space
I’ve identified these 5 local companies I believe could double in share price or even more over the next 24 months! You can learn more here.
What exactly is a stock split
A stock split means a company with say a R400 share price and 1 million shares in issue splits its shares 4-to-1 becoming 4 million R100 shares. The total share value was R400 million before the split, and it remains R400 million after the split.
A shareholder that held 100 x R400 shares before the split, would own 400 x R100 shares after the split.
So, while it might look like you lost money if you ONLY see the share price – your holdings will be worth the same before and after because you’ll be left with MORE shares after the split.
Investopedia defines a stock split as: “A stock split is when a company divides the existing shares of its stock into multiple new shares to boost the stock's liquidity. Although the number of shares outstanding increases by a specific multiple, the total dollar value of the shares remains the same compared to pre-split amounts, because the split does not add any real value.”
When a stock split is implemented, the price of shares adjusts automatically. A company's directors make the decision to split the stock. For example, a stock split may be 2-for-1, 3-for-1, 5-for-1, 10-for-1, 100-for-1, etc.
A 3-for-1 stock split means for every one share held by an investor, there will now be three. In other words, the number of outstanding shares in the market will triple. On the other hand, the price per share after the 3-for-1 stock split will be reduced by dividing the price by 3. This way, the company's overall value, measured by the market capitalization, would remain the same.
Why would companies do stock splits?
When a company’s share price becomes too high, companies tend to do a split.
By doing the split, a company lowers the trading price of a stock. That can typically make it easier to trade, improving liquidity.
Take Tesla’s stock for example. Tesla shares currently trade at $1,374.39 each. That’s around R24,048 for a single share!
So, if someone wants to buy into Tesla the minimum is R24,000. Now, if Tesla does a 5-to-1 stock split, you’d be able to buy a single share for R4,809.60. Or buy three shares for R14,428.80. Suddenly a smaller investor can invest in the company more easily.
Or for instance, if employees of the company get awarded shares in an incentive scheme – the smaller share price makes it easier to award these bonusses.
Are you ready for the next quarter of profit taking?
If you missed the last quarter, you’re in luck for the next.
Basically, Timon’s weekly profit strategy has been outperforming most markets recently.
He’s generated double and triple digit gains in as little as 2 weeks.
And month after month, the gains just keep on rolling in.
Take a look at the last three months:
But I think you ought to see the proof for yourself.
You can also get ‘reverse’ stock splits
Sometimes, especially with small-cap stocks and penny shares we see ‘reverse’ stock splits or share consolidations.
This would happen say if a company has 10 billion shares in issue at 1c each for a market cap of R100 million.
The company then decides to consolidate its shares 1-to-100. That means – if you had 100 shares before the consolidation you would end up with 1 share afterwards. But the 1c share price would increase to R1, while the market cap remains R100 million.
Typically minority shareholders then also get offered cash for their shares, so if they own only part of 100 shares – they get paid out cash instead of a consolidated share.
A company would do this – because a share price of 1c creates a lot of volatility. If the share price rises from 1c to 2c, the price rose 100%, and the company’s market cap increases from R100 million to R200 million. But it could be that investors only believe the company is worth R150 million. We can’t price a share at 1.5c though.
But after a 1-to-100 share consolidation that same share could be priced at say R1.50 – making the market cap R150 million.
So, a stock split, or consolidation doesn’t change the price or value of a company’s stock – but thanks to the way it can affect liquidity, it can have a positive effect on the share price in the long run.
Here’s to unleashing real value
Editor, Red Hot Penny Shares
P.S. Each day this week I will reveal select details on 5 of the best value penny stocks on the JSE… But if you want to get your hands on them right now, free, go here.