With Alphabet, Look Beyond its Stock Split

Thomas Niel

Thu, Mar 31, 2022, 6:00 PM 4 min read

There has been considerable buzz around a possible positive impact from Alphabet’s (GOOG) upcoming stock split.
However, the overall direction of the market could outweigh this factor between now and the Jul. 15 split date.
Instead of buying it solely to profit from a post-split boost, buy it as a long-term investment, not as a trade.

Source: turtix / Shutterstock.com

As tech bounces back after its brief move into bear market territory, shares in Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) have been bouncing back, as well. Since mid-March, GOOG stock has climbed back from $2,550 to $2,830 per share.

Besides the tech rebound, something else may be playing a role: increased buzz about the FAANG component’s plans to split its shares. Given that a lower share price would make the stock more accessible to retail investors, many see this as a catalyst to send it even higher from here.

So, with this in mind, should you buy now and cash out at a profit when the split occurs Jul. 15? Not so fast. Stock split talk may be playing some sort of role in its latest surge. Yet, it is the market’s overall direction that is currently, and will continue to, play a much larger role in its price direction.

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In short, don’t buy it solely for this reason. Instead, look beyond this event and have a more substantive reason for adding it to your portfolio.

GOOG, GOOGL

Alphabet Inc.

$2830,82, $2,819.18

GOOG Stock and the Upcoming Split

Back in February, Alphabet, the parent company of Google and YouTube, announced plans to split its stock on a 20-to-1 basis. In other words, after the split, instead of trading for $2,830 per share, the stock would trade for $141.50 per share.

Again, a lower stock price would make GOOG stock more accessible to individual investors. Not only that, but it could theoretically result in it being added as a Dow Jones Industrial Average component. The first may increase how many small investors hold shares, moving it higher. The second, if it happens, could result in increased inflows from index funds and other passive investment vehicles.

Take all of this into account and it seems that Alphabet has something in play that, independent of the performance of its underlying business, could help send its stock price higher over the next three or so months. Then again, while this is a positive driver for shares, keep in mind that other drivers — both positive and negative — will outweigh it.

Specifically, the direction of the overall stock market between now and the aforementioned split date of Jul. 15. Sure, this isn’t a negative right off the bat. If the rebound we’ve seen since earlier this month carries on, this plus the stock split lift could make it a profitable trade. But if this rebound turns out to be short-lived and the uncertainties that have rocked the market continue, a market downturn would overshadow split mania, resulting in shares moving lower from where they are today.

Further Weakness Could Create a Much Better Entry Point

The rebound in GOOG stock, tech stocks, and stocks overall didn’t come out of left field. Instead, U.S. Federal Reserve (Fed) Chair Jerome Powell’s latest remarks on inflation and the Fed’s plans to fight it with interest rate hikes was what set the rebound into motion.

By explicitly saying the Fed plans to raise rates as aggressively as it needs to in order to bring inflation under control, Powell helped to remove uncertainty around this issue. Unfortunately, this renewed bullishness could prove to be short-lived.

It is far more certain that we will see interest rates move back up in a rapid fashion. Yet, it is uncertain what this will do to the economy. If more signs point to rising rates causing a recession all while the inflation issue is unresolved, stocks could experience another drop.

With this, you may not want to buy Alphabet solely to trade around the split. In fact, you shouldn’t buy it for the split factor at all. Instead, the best way to approach it is as a long-term investment.

Buy it as a Long-Term Investment, Not as a Trade

Buying shares now, with the intent to flip them post-split, could prove to be unprofitable. Taking a less fast money approach, however, could be a move that ultimately pays off.

Over the next few years, even this company, its large size notwithstanding, could continue to steadily climb in price. By moving into new areas like cybersecurity, Alphabet could see its growth re-accelerate, pushing shares higher due to both increased earnings and expansion.

Whether you buy now or on further weakness, GOOG stock could produce above-average long-term returns. And these returns could make any modest post-split boost really seem like small potatoes.

On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.