1998 on Pace to Break Record for Stock Splits

With Inktomi announcing a 2-for-1 stock split Tuesday, several other surging Internet companies could soon follow suit.

Companies usually split their stocks after big price run-ups, often to make them more affordable for average investors. And Internet companies, of course, have been among the year’s biggest runners.

San Mateo, Calif.-based software developer Inktomi, for instance, is now at $127 a share, up 605% from its June initial public offering price.

This year “will probably set the record” for splits, said Arnold Kaufman, editor of Standard & Poor’s Outlook newsletter. Through November, 210 stocks listed on the New York Stock Exchange had split, easily on pace to break 1997’s record of 235.

Internet-related companies are more than playing their part: America Online split 2-for-1 on Nov. 17, Charles Schwab split 3-for-2 on Dec. 14 and Amazon.com is splitting 3-for-1 on Jan. 5 for shareholders of record Dec. 18. Inktomi’s split takes effect Jan. 27 for holders of record Jan. 12.

Yahoo split 3-for-2 in 1997 and 2-for-1 this year. At $270 a share, it’s considered a prime candidate for another split.

Usually, stocks take awhile to reach split territory, but online auctioneer EBay, which at $273.94 a share is up fifteenfold from its Sept. 9 IPO price, might be headed for a fast split.

Even smaller companies are jumping into the act. Gallery of History, which sells historical letters, documents and signatures of presidents and other political figures, will split 2-for-1 on Jan. 11 for holders of record Dec. 24. The company, whose shares now fetch just $18.75--a paltry amount by splitsville standards--announced its split three days after establishing plans to launch online auctions. The shares are up 632% this year.

While splits multiply the number of shares investors hold, they simultaneously reduce the face value of the stock proportionally. If you own 100 shares of a $150 stock that splits 2-for-1, you get 200 shares worth $75 apiece.

Technically, it’s a wash. But because stocks that split often have strong upward momentum on their side, many investors see splits as a bullish sign.

(Some investors even carry beepers that alert them of splits in liquid crystal display: Instead of “Call home,” the readout might say, “Intel announces 2-for-1.”)

But does it really pay to jump into stocks that announce splits?

Opinions are, well, divided.

Though some studies have shown that split stocks, on average, outperform the broad market in the year following the split, research from Standard & Poor’s tells a more complicated story.

S&P; analyst Paul Cherney said his study of 359 NYSE stocks that split 2-for-1 or better from 1995 through 1997 showed them under-performing the leading blue-chip benchmark, the S&P; 500 index, in the following year.

While 70.9% of the split stocks gained ground in the next year, only 30.6% beat the index.

Buying stocks that split, “your odds of picking a winner are very good,” Cherney said. “I’ll take seven in 10 any day. But it’s not as clear-cut as people will lead you to believe. It’s tough to beat the benchmark.”

Cherney said his research indicates that the best chance for beating the market with split stocks is in the time between the announcement and the split.

One of his studies found that stocks gained 4%, on average, in the 20 days leading up to a split, or double the S&P;’s 2% average gain in the same time. In the 10 days before the split, the stocks rose 2.2%, versus 0.9% for the index. Even on the split day they gained 0.46%, versus 0.12% for the index.

As for Inktomi, it fell $10.38 to $127 on Tuesday, after Intel said it may trim its investment stake in the company by 28%, to 433,000 shares. Intel also said it may sell about 30% of its shares in Internet services firm CNet.

Inktomi’s split announcement was made after markets closed.

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Splitters?

Here is a sampling of companies that could split their shares in the near future, according to Standard & Poor’s analysts. Stocks are listed alphabetically.

Company / Tues. close

America Online: $154.63

Biogen: 79.25

Compuware: 74.00

IBM: 187.13

Lucent Tech.: 112.06

MCI WorldCom: 74.25

Microsoft: 140.50

Pfizer: 124.63

Xerox: 120.88

Yahoo: 270.00

* Source: Standard & Poor’s