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When you wake up Monday morning and find Apple's (NASDAQ: AAPL) share price below $100 per share don't be alarmed. Apple's much anticipated 7-for-1 stock split will be effective after the close of trading today and start trading on a split-adjusted basis on Monday. Shareholders of record will receive six additional shares for each share held on June 2, 2014.
While a stock split does nothing fundamentally, psychologically the lower price could bring in fresh buyers. The last time shares of Apple were below $100 per share was May 2, 2007.
The stock split was one of the reasons cited by Bernstein analyst Toni Sacconaghi in his recent price target hike to $700. He said the split could broaden retail interest and psychologically make it easier for stock price to climb (e.g., $90 to $100, vs. $625 to $700). "Historically, our analysis points to evidence that companies that split their shares outperform in the near-term," he said.
In addition to the psychological benefit, the split could also open up Apple to the Dow 30.
Because the Dow is a price-weighed average, having a nearly $700 stock in the Dow is not feasible. With the split moving the stock price below $100 per share, an addition is now entirely possible. In April, when StreetInsider.com reached out to S&P Dow Jones Indices Director & Global Head of Communications about the matter, were were told "We cannot comment on the potential for any company to be added to or removed from our indices. We consider this material, market moving information." The key is 'market moving'. An addition to the Dow would clearly be market moving for Apple.
So while the split changes nothing, it also changes everything.
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