Stock-Split Watch: 2 Top Stocks That Look Ready to Split

Stock splits are a common way of divvying up the investing pie so more people can buy in. They don't make the pie any bigger or otherwise change its value, but they do imply a stock that's in growth mode and has already wowed investors. The markets generally love them, and a stock can often jump on the news of a split.

There have been lots of prominent stock splits over the past few years, including Nvidia and Chipotle Mexican Grill in June. Which top stocks might come next? Costco Wholesale (NASDAQ: COST) and MercadoLibre (NASDAQ: MELI) look like strong candidates.

Costco just keeps getting better

Shoppers love Costco, investors love Costco, and there may not be too many people who don't love it. (Maybe its competitors?) It has a differentiated retail model that attracts members, breeds loyalty and volume, and is highly profitable.

Renewal rates have been consistently above 90%, and it adds millions of new members annually. Costco keeps its prices low and marks up products with low margins to attract shoppers and generate high sales, and the value it offers its customers leads to satisfaction and repeat trips. The membership fee goes straight to the bottom line, which continues to swell.

This has been the case for years, but it's even more obvious as it deals with one economic challenge after the next without missing too many steps. Like other essentials retailers, the early pandemic was a period of elevated growth. It managed through the supply chain problems by using its leverage to create its own, and it was finally challenged by inflation when sales growth dipped temporarily toward the negative. But it's back and pumping, and investors have flocked to this reliable value stock that also pays a dividend.

The dividend isn't the highest-yielding or anywhere close, but it's attracted attention through its special dividend program. It has paid a special dividend on average about every 2.5 years, most recently a $15 dividend this past December.

Investors had been waiting for that announcement, and Costco also recently received attention for another highly anticipated update: a fee hike. It raised its annual membership fee by $5 to $65 (or by $10 for the executive membership) this month for the first time in seven years. That should boost the bottom line, although management says that it uses the extra income from the fee to invest back into providing even greater value for the customer.

Costco stock is a consistent market-beating stock, and it's up 34% year to date. It hasn't split its stock in nearly 25 years, and it has gained 2,780% since then. It's getting close to a four-digit price tag, which might mean it's time for the next split.

MercadoLibre might be the best e-commerce stock you can buy

E-commerce isn't exactly a buzzword anymore. Not only has it been around for a long time, but it accelerated during the pandemic and is completely mainstream. It's unusual at this point for any company not to have an e-commerce presence, and some companies are all online.

MercadoLibre is an e-commerce powerhouse in Latin America, and it's growing at fantastically high rates. While those reached into the triple digits early in the pandemic, they've stabilized in the high double digits despite a multitude of challenges, from inflation to building on high sales to serving some economically volatile markets.

There should be a lot more on the horizon. Its region still has a high cash reliance in comparison to other global regions, and e-commerce is still underpenetrated. MercadoLibre is the leading e-commerce company in most of the countries it serves, and it constantly upgrades its platform with improvements in delivery times and membership features.

Although the e-commerce business is growing at a healthy rate, the company has launched a robust fintech business that's driving engagement and growing at even faster rates. This segment started as a way for the underbanked population to have access to its digital platform, but it's expanded to a large financial services business with credit and investment products. MercadoLibre is even dipping its toes into banking, with its first efforts aimed at Mexico.

MercadoLibre has never split its stock in its 17 years as a public company, and it's gained 7,380% over that time. It trades with a 4-digit price tag, which is often grounds for a stock split. Management usually explains its decision to split its stock by saying that it wants to make the stock more accessible for employees to buy into a company-sponsored stock program, and four figures could be pretty restrictive.

So far, MercadoLibre hasn't bothered with a split, but it's looking more and more likely.

Should you invest $1,000 in Costco Wholesale right now?

Before you buy stock in Costco Wholesale, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Costco Wholesale wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $716,988!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 30, 2024

Jennifer Saibil has positions in MercadoLibre. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Costco Wholesale, MercadoLibre, and Nvidia. The Motley Fool recommends the following options: short September 2024 $52 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.