Source: Zhitong Finance "Since 1950, the S&P 500 index has risen more than 10% 21 times as of the end of May. In about 90% of these cases, the S&P 500 index rose for the rest of the year. There were only two instances of declines for the rest of the year, in 1987 (-13%) and 1986 (-0.1%)." With the rebound of the stock market, the old adage "Sell in May and Go Away" seems to have been a bad advice once again. Last month, the S&P 500 index rose 4.8%, the best May performance since 2009. The NASDAQ 100 index rose nearly 6.2%, and the NASDAQ Composite Index rose 6.9%. Goldman Sachs FICC & Equities Trading Division said: "History doesn't really support this saying. Don't sell, leave the market (go on vacation), and enjoy the good times." The rising trend is still to be continued? If history is any guide, it may indicate that the rise of the stock market is not over yet. Looking ahead to the rest of 2024, Scott Rubner, Managing Director of the Goldman Sachs Global Markets Division and tactical expert, pointed out the following historical background for investors. Rubner stated that the S&P 500 index has risen 10.7% year-to-date, and since 1950, the S&P 500 index has risen more than 10% 21 times as of the end of May. In about 90% of these cases, the S&P 500 index rose for the rest of the year. There were only two instances of declines for the rest of the year, in 1987 (-13%) and 1986 (-0.1%). "Since 1950, the median return of the last 7 months of each year (June 1 to December 31) is 5.4%. In the aforementioned 21 cases, the average performance of the last 7 months increased to 8.1%." Rubner added. Rubner also pointed out that the NASDAQ index has risen for 16 consecutive Julys, with an average return of about 4.64%.

The short-term trend of US stocks is always elusive. In the increased market volatility, especially during downturns, investors often seek stability in industry leaders whose historical performance has exceeded the S&P 500 index. Although FAANG stocks have been favored by investors for many years, companies that implement stock splits are more likely to attract attention during uncertain periods.

As it is known, a stock split is an event where a company adjusts its stock price and number of outstanding shares at the same proportion, it is only a superficial phenomenon without a substantive impact on a company's market cap or business performance.

There are two types of stock splits: forward splits and reverse splits. Forward splits reduce the nominal stock price of a company and make it easier for individual investors to purchase; while reverse splits are done to increase stock price to meet the minimum listing standards of major exchanges.

Although reverse stock splits have been successful in some cases, investors tend to focus on companies that implement forward splits. These companies usually excel in innovation and execution and are expected to perform well in the long term.

However, not all Wall Street observers believe that stocks that have undergone splits will continue to rise. According to some analysts' low-water price targets, the following three split stocks may face a downside risk of up to 29%.

Nvidia: Potential decline of 22%

At least one analyst believes that$NVIDIA (NVDA.US)$as a giant in the field of artificial intelligence (AI), Nvidia may experience a sharp price decline. Nvidia recently announced plans for a 10-for-1 forward split, having completed a 1-for-4 split in July 2021 before.

DA Davidson analyst Gil Luria expects Nvidia's share price to reach $900. If this were a target price a year ago, Luria would be considered one of the most optimistic analysts on Wall Street. However, with Nvidia's share price just over $1,148 as of May 29th, 2022, the best performing mega-cap stock since early 2023 could mean a potential decline of 22%.

Although Nvidia's H100 graphics processing unit (GPU) is the first choice for AI accelerated data centers, making its pricing power leading and gross margin substantially improved, competition is inevitable.$Intel (INTC.US)$It is expected to launch its Gaudi 3 AI accelerator chip in the third quarter, while AMD (AMD.US) is also increasing production of its MI300X GPU to compete with Nvidia's H100 chip.

A bigger concern is that Nvidia's top customers are developing their own AI GPUs.$Microsoft (MSFT.US)$, $Meta Platforms (META.US)$, $Amazon (AMZN.US)$ and $Alphabet-A (GOOGL.US)$which account for about 40% of Nvidia's sales, but they are supplementing Nvidia's H100 chip with in-house GPUs. This year may be the peak of Nvidia's orders, gross margin, and GPU pricing power.

History seems to foreshadow Nvidia's future. There hasn't been a significant investment in the past 30 years that could avoid a burst of the bubble. Despite the promising prospects of artificial intelligence, its early adoption and absorption may be more challenging than investors expect. If the AI bubble bursts, no company will be hit harder than Nvidia.

Amphenol: Potential decline of 29%

Another Wall Street expert predicts that the electronic components giant$Amphenol (APH.US)$may experience a rapid decline in its stock price in the near future. On May 20th, Amphenol's board of directors approved a 2:1 forward split, which is expected to take effect on June 11th.

Although Amphenol's performance since the early 1990s has been superior to the S&P 500 index, with a rise of nearly 46,000%, compared to the S&P 500 index's rise of only about 1,240%, Stifel analyst Matthew Sheerin is not optimistic about the company's future. Sheerin's target price is $95, which means Amphenol's share price could fall by 29%, shrinking its market cap by about $23 billion.

The most reasonable reason for Sheerin's skeptical attitude towards Amphenol is the company's valuation. Amphenol's success lies in mass-producing electrical and fiber optic connectors, coaxial cables, and other typically inexpensive parts, and achieving substantial profits in the process.

However, the company's current PE ratio has exceeded 34 times, and the expected annualized profit growth rate for the next five years is 13.4%. In contrast, Amphenol's average expected PE ratio over the past five years has been 27 times. Investors must go back to the Internet bubble period to find a time when Amphenol's stock price was so expensive.

Amphenol is also cyclical, and several predicted indicators indicate that the US economy may be on the brink of a downturn. For example, the US money supply has dropped significantly for the first time, indicating economic weakness. If the US or global economy falls into a recession, orders for electronic components are expected to slow down.

Fanglin Group: potential 24% drop

According to a Wall Street analyst's forecast, the third stock that may plummet is the semiconductor wafer manufacturing equipment company.$Lam Research (LRCX.US)$On May 21st, Fanglin Group's board of directors approved a 10:1 forward stock split, which is expected to take effect before the market opens on October 3rd.

with$Walmart (WMT.US)$ and $Chipotle Mexican Grill (CMG.US)$The stock split announced earlier this year was similar, and Fanglin Group's stock split was designed to make it easier for employees to afford the stock so that they can participate in the company's employee stock ownership plan.

But given that Fanglin Group's stock price has risen by 1,440% in the past 10 years, Morgan Stanley analyst Joseph Moore is not bullish on the stock. Moore has set a target price of $720 for Fanglin Group, which means that the stock price of this leading wafer equipment supplier may fall by 24% next year.

In addition, one reason why Moore may be disappointed with Fanglin Group is that US regulators are not friendly to the semiconductor equipment industry, at least according to its current price of $953. Just as regulators twice restricted Nvidia's high-performance A100 and H100 AI-GPUs from being exported to China in the past two years, they also restricted the export of wafer manufacturing equipment to China. These export restrictions clearly limit Fanglin Group's ability to take advantage of the AI revolution.

Valuation is also an issue. Over the past five years, Fanglin Group's PE ratio has been about 4.7 times its sales and 17 times its expected EPS. The current stock price is 7.1 times the expected sales next year and nearly 27 times the expected EPS. For a cyclically strong industry, this is a high cost.

Finally, Moore may be concerned about economic headwinds. Although the US economy continues to move forward slowly, the Leading Economic Indicators index from the Economic Advisory Committee has been declining month by month, indicating that the US economy will be weak in the second half of the year. At the same time, the decline in M2 also indicates trouble. During an economic contraction, cyclically traded companies that trade at a premium often suffer the most severe blows.

Editor/tolk