STOCK SPLITS

Companies split their stocks because they want the price to be low enough to entice more people to buy it. That usually propels the stock even higher. That is a cycle companies want to perpetuate. The important point is that the company that splits its stock is most likely doing well fundamentally. So, if one looks for companies that are splitting one will probably find companies that are fundamentally sound and are experiencing growth with regard to their stock price. The best of both worlds. Most companies that have stock splits see their stocks rally back to the pre split price within several months.

It is not so uncommon that a stock doubles after the split. Let's look at what happened to Nam Tai Electronics Inc ($36.10 on 11/24/03). In 7/8/2003 it splitted 2 for 1 (that is, every shareholder received 1 extra share for each share he already owned and the price was divided by 2). The post-split adjusted price was around $17, now it is around $36.

By the way, this seems to have been an excelent trading stock since then. It is easier to buy it at the bottom of the range, sell it high, and wait for it to go to the bottom of the range to do it again. Look at how it often goes higher several percentage points after approximating the 50 day moving average.