1 Stock-Split Stock to Buy Hand Over Fist in March and 1 to Avoid

In case you haven't noticed, the bulls have been running the show on Wall Street for almost 2.5 years. Since the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite bottomed out in October 2022, all three major indexes have rocketed to multiple all-time highs.

Although the evolution of artificial intelligence (AI) and Donald Trump's return to the White House have been two of the biggest stories propelling equities higher, don't overlook the role stock-split euphoria has played in lifting the valuations of high-profile stocks.

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A stock split is a cosmetic event that allows a publicly traded company to alter its share price and outstanding share count by the same magnitude. These adjustments are cosmetic in the sense that stock splits don't alter a company's market cap or in any way impact its underlying operating performance.

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Splits come in two "flavors," with investors gravitating to one more often than the other. The less-popular of the two is a reverse split, which is designed to increase a company's share price. This type of split is typically undertaken by struggling companies that are attempting to avoid delisting from a major stock exchange.

On the other hand, a forward split aims to reduce a company's share price to make it more nominally affordable for everyday investors. The companies undertaking forward stock splits are usually outperforming their peers in terms of innovation and execution. It's this type of split that often attracts investors.

In 2024, more than a dozen prominent businesses conducted a stock split -- only one was of the reverse variety. Yet as we steam ahead into March, it's this unique stock-split stock that stands out as a no-brainer buy. On the other end of the spectrum, Wall Street's fastest-growing stock-split stock is worth avoiding.

The stock-split stock to confidently buy hand over fist in March: Sirius XM Holdings

The aforementioned lone brand-name company that completed a reverse split in 2024 was satellite-radio operator Sirius XM Holdings (NASDAQ: SIRI). Sirius XM merged with Liberty Media's Sirius XM tracking stock (Liberty Sirius XM Group) to create a single class of common shares, and upon consummation of this merger enacted a 1-for-10 reverse split after the close of trading on Sept. 9.

While it's true that most reverse splits are conducted from a position of operating weakness, this wasn't the case with Sirius XM, whose shares were in no danger of being delisted from the Nasdaq stock exchange. Rather, this split looks to be all about getting its shares back on the radar of institutional money managers. Some funds won't invest in companies whose share price remains below $5. Sirius XM's reverse split resolved this concern.

Although it's been contending with stagnant sales and saw its subscriber count fall by less than 1% last year, there are a number of reasons to believe Sirius XM stock makes for a no-brainer buy in March.

Investing in Sirius XM is all about recognizing its competitive advantages. Front and center among these is its standing as the only licensed satellite-radio operator. In other words, it's a legal monopoly. Though it's not free of competition for listeners, being a legal monopoly does afford Sirius XM a level of pricing power with its in-vehicle subscriptions that most companies lack.

To build on this point, Sirius XM also enjoys a degree of expense predictability that's not found with traditional radio operators. Whereas royalty and talent acquisition costs are going to ebb-and-flow from quarter to quarter, transmission and equipment costs remain highly predictable and relatively static no matter how many self-pay subscribers the company has under its belt.

However, what might be even more important for Sirius XM than its legal monopoly status is its revenue breakdown. Most traditional radio companies generate the bulk of their net sales from advertising. While this works great when the economy is firing on all cylinders, ad revenue dries up quickly at the first hint of trouble.

As for Sirius XM, it generated around 20% of its net sales from advertising in 2024, with a whopping 76% of revenue tracing back to subscriptions. Listeners are less likely to cancel their service during a short-lived recession than businesses are to slash their advertising budget. Long story short, Sirius XM's operating cash flow is safer and more transparent than other radio operators.

The cherry on the sundae for investors is Sirius XM's historically inexpensive valuation. Its forward-year price-to-earnings (P/E) ratio of 7.6 represents a 49% discount to its average forward P/E multiple over the last half-decade.

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The stock-split stock to shy away from in March: Super Micro Computer

On the other side of the aisle, not every company completing a forward stock split is worth buying. The stock-split stock investors would be smart to keep their distance from in March is none other than customizable rack server and storage solutions specialist Super Micro Computer (NASDAQ: SMCI). Supermicro, as the company is better known, completed a 10-for-1 forward split following the close of trading on Sept. 30.

On paper, a lot has gone right for Supermicro. Net sales surged by 110% to almost $15 billion in fiscal 2024 (ended June 30), and management's $23.5 billion to $25 billion sales guide for the current fiscal year implies another 62% year-over-year revenue growth at the midpoint.

The company's customizable rack servers are in high demand as businesses aggressively spend on AI infrastructure to expand their high-compute data centers. Super Micro Computer is being further helped out by incorporating Nvidia's highly sought-after graphics processing units (GPUs) into its customizable rack servers.

Though Super Micro Computer has clearly been in the right place at the right time, there are reasons investors should shy away from its stock.

The biggest issue for Supermicro has been concerns about its financial accounting. Last week, the company filed its delinquent 2024 annual report and 2025 first-quarter report with the Securities and Exchange Commission. These delayed filings followed allegations in late August from noted short-seller Hindenburg Research of "accounting manipulation" at Super Micro Computer. In December, an independent committee found no evidence of fraud by management and didn't anticipate the company needing to restate its financial reports.

While it would appear that these allegations have been firmly swept away, this isn't the first time that Supermicro was delinquent in filing its financial statements. In 2018, the company was delisted by the Nasdaq exchange for its filing delinquencies. Even with an independent committee finding no wrongdoing, the company doesn't exactly inspire confidence with its accounting methods.

Supermicro also finds itself at the mercy of Nvidia's supply chain. Despite Nvidia ramping up production of its GPUs, AI-GPU scarcity continues to weigh on Super Micro Computer's ability to maximize sales and meet orders.

Lastly, Supermicro runs the risk of being dragged down by the bursting of the AI bubble. Since the advent of the internet in the mid-1990s, every game-changing technology has endured an early innings bubble-bursting event. This is the result of investors overestimating the adoption rate and use cases of a new technology. It seems highly unlikely that Super Micro Computer can sustain a 60%-plus annual sales growth rate. If the AI bubble bursts, Supermicro is likely to be one of the hardest-hit stocks.

Should you invest $1,000 in Sirius XM right now?

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Sean Williams has positions in Sirius XM. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.