We recently published a list of 10 Stocks To Buy Before They Split Next. In this article, we are going to take a look at where AutoZone, Inc. (NYSE:AZO) stands against other stocks to buy before they split next.
S&P 500: Targeting 6,000 Amid Market Optimism
There’s been a notable sense of fear among investors despite the market’s current strong performance. The upcoming weeks are expected to be particularly interesting due to the convergence of earnings reports and an impending election, alongside uncertainty regarding the Fed’s next moves. But the fact remains that the market has shown resilience, with numerous new highs for major indices this year, although investors remain skeptical. Historically, volatility tends to increase after elections as political changes take effect. Currently, volatility is relatively low but is anticipated to rise as January approaches and clarity about potential policy impacts emerges.
Despite prevailing uncertainties, there remains cautious optimism about the market’s ability to maintain its upward trajectory. In mid-October, J.J. Kinahan, IG North America CEO, joined CNBC to the skepticism displayed by investors. We covered his sentiment in our article about the 8 Best US Stocks For Foreign Investors Right Now:
“Kinahan pointed out that many investors are hesitant, particularly those in their mid-30s and younger, who have not experienced a significant downturn in the market. He explained that this demographic often perceives any market decline as temporary, lasting only a few days. He emphasized the importance of taking risks when young and noted that many younger investors are excited about their opportunities in the current market environment. This positive sentiment is particularly significant given their parents’ experiences during the financial crisis of 2008-2009.
He also speculated that part of the reason for the market’s strong performance might be attributed to older investors who have been burned in previous downturns and are now waiting for a pullback that has yet to materialize. Kinahan suggested that as these investors gradually capitulate, they may start to invest more actively in the market.”
READ ALSO 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In
Around the same time, Mary Ann Bartels, Sanctuary Wealth chief investment strategist, joined ‘Squawk Box’ on CNBC to discuss the market trends as well. On October 14, Mary Ann Bartels highlighted that the S&P 500 could reach 6,000 by year-end. However, she acknowledged that while this target is achievable, the journey may not be smooth.
Bartels noted that there could be volatility ahead, as evidenced by increased hedging activity in the market. However, she remains optimistic due to the Fed’s shift towards an easier monetary policy and the ongoing economic growth, which is supported by full employment, albeit with a slight slowdown in job creation. Importantly, she highlighted that corporate profits are on the rise, with earnings currently beating expectations by about 5%. This positive trend across fundamental and technical indicators leads her to believe that the market can continue its rally into November and December.
As the S&P 500 recently closed above 5,800 for the first time at 5,815, Bartels discussed how this milestone brings the 6,000 target closer. She echoed sentiments from Tom Lee, who suggested that market behavior could improve significantly if there is clarity regarding the outcome of the presidential election. Bartels agreed that once a winner is declared, it could trigger a relief rally as both domestic and foreign investors gain confidence in the stability of US leadership.
Turning to the Fed’s actions, Bartels addressed concerns about recent CPI and PPI data coming in hotter than expected. She described potential short-term volatility as a bucking bull, indicating that while fluctuations might occur, the overall trend remains upward. Her year-ahead thesis suggests both fixed-income and equity markets are poised for positive returns, albeit with some bumps along the way.
Bartels also advocated for buying opportunities in the current market environment. She specifically pointed to technology stocks and the NASDAQ, which has yet to hit a new record high. She believes technology will continue to lead the market, particularly emphasizing semiconductors as key drivers of growth. For investors looking to enter the tech sector, she sees this as an opportune moment.
Her perspective underscores a belief in the resilience of corporate profits and economic fundamentals amid changing monetary policies and external uncertainties. At the same time, it should be noted that the optimistic outlook for the S&P 500 targeting 6,000 is significant for stock splits as it reflects positive market sentiment, encouraging companies to make their shares more accessible to retail investors. When share prices rise, splits can attract more buyers by lowering the price per share. However, it’s important to note that a stock split does not change anything about a business’s fundamentals. A poor company will stay a poor company post-split and a good company will stay a good company.
Methodology
We sifted through financial media reports to compile a list of stocks that are likely to split. We then selected the 20 stocks that have experienced the highest gains in their share prices over the past 5 years and have a history of spitting their stock. From that, we picked the top 10 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A technician in a mechanic’s uniform replacing an A/C compressor, signifying the company’s automotive replacement parts business.
Autozone Inc. (NYSE:AZO)
Share Price as of October 18: $3,141.19
Surge in Share Price in 5 Years: 182.99%
Stock Split Confirmed: no
Number of Hedge Fund Holders: 45
Autozone Inc. (NYSE:AZO) is a leading retailer and distributor of automotive replacement parts and accessories. It operates a network of stores, serving both professional mechanics and do-it-yourself customers. Products include engine parts, brakes, batteries, and other automotive components.
In FQ4 2024, the company made $6.21 billion in revenue, up 9.05% year-over-year. Total company same-store sales grew by 1.3%, with domestic same-store sales up 0.2% and international same-store sales up 9.9%. Domestic commercial sales accelerated sequentially, finishing up 4.5% compared to the previous year’s FQ4 of 3.9%.
At the same time, sales for home improvement (DIY) products were sequentially flat, with a slight decrease of 1%. Sales in optional categories like tools and appliances dropped by 5% due to economic problems. Prices for DIY items rose a little, but are expected to go back to normal industry growth rates. The number of DIY transactions decreased by 2%, but the company gained more market share.
Autozone Inc. (NYSE:AZO) has demonstrated a strong commitment to customer service, which it now refers to as “WOW! Customer Service.” This focus, combined with improvements in inventory availability, hub and mega hub coverage, the Duralast brand’s focus on quality, and technology advancements, is driving significant growth in commercial sales, making it a promising investment opportunity.
RGA Investment Advisors made the following comment about AutoZone, Inc. (NYSE:AZO) in its Q4 2022 investor letter:
“Below is a chart of Alphabet’s (NASDAQ:GOOG) P/E ratio plotted against AutoZone, Inc. (NYSE:AZO). Any number of examples between large cap tech companies and more mature companies could illustrate this very same point, but we find this specific case most interesting because of its history.
Note that in late 2014/early 2015 these multiples crossed one another. The relative harmony between Alphabet and Autozone lasted for just shy of a year at that time, before Alphabet’s shares surged and Autozone’s shares slumped. This relationship need not matter for markets, though we think there is some signal for investors. Autozone today trades at the highest multiples of its recent history, while Alphabet trades at its lowest. Meanwhile, despite growth estimates dropping considerably at Alphabet and appreciating modestly at Autozone, Alphabet will outgrow Autozone by a wide margin over the next five years…” (Click here to read the full text)
Overall, AZO ranks 8th on our list of stocks to buy before they split next. While we acknowledge the growth potential of AZO, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AZO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.
