AVDE - Novo Nordisk: What The Stock Split Means For Traders And Investors

2023-09-20 11:53:19 ET

Summary

• Danish diabetes care giant Novo Nordisk is splitting its shares, with the Danish-listed B shares splitting on September 13 and the NYSE-listed ADRs splitting on September 20.
• This split marks a milestone in Novo Nordisk's share price appreciation, as well as making the size of options contracts more manageable to smaller investors.
• Novo Nordisk is one foreign stock where I prefer to trade the US ADR over the foreign local share because the US ADRs have liquid options.
• Novo Nordisk is a top holding in many US ETFs tracking global non-US stocks, and these ETFs tend to hold the local shares listed in Copenhagen.

This month, Danish diabetes care giant Novo Nordisk ( NVO ) is doing another 2:1 stock split , splitting its native Danish-listed B shares ( OTCPK:NONOF ) last week on September 13, and its NYSE-listed ADRs today on September 20. NVO is the ticker of the NYSE-listed ADR, and the way I expect most of the readers of this article to be trading this name, and while the native Copenhagen ticker is "NOVO B" , I will use the Seeking Alpha ticker "NONOF" to refer to the foreign ordinary. In this article, I wanted to go over how this stock split marks a milestone in NVO's impressive return history, and what the split is likely to mean for different investors and traders. For more background on this company, I also refer readers to my July article on NVO , where I called this stock "Denmark's Coca-Cola", or perhaps just as well "The Coca-Cola of diabetes care".

Novo Nordisk's Stock Split History

The full history of NVO's stock split history is available here on Seeking Alpha , as well as Novo Nordisk's dividend web page . As seen in the latter link, NVO's 2.5:1 split in 2001 was paired with a 5:1 split in NONOF to make the ADR ratio 1:1, so that since 2001, one share of NVO has been equal in value to one share of NONOF.

The following three charts show how NVO shares appreciated between each of the last three stock split periods. Note that all of these charts have already been adjusted based on the 2023 split, so by the third chart, you may require some mental math to keep in mind that $2 on the third chart corresponded to a $40 then-current share price just after the 2001 split.

First, we look at NVO's chart from the 2014 split to today's split in 2023. This year's split seems quite likely driven by NVO's share price approaching $200, with the goal of bringing the post-split share price back under $100. What I find interesting here is that NVO's 2014 split was also right around a $200 pre-split price, but for whatever reason it was decided in 2014 to split the shares 5:1 so that the post-split price in 2014 was around $40/share. As with the previous two splits we will look at below, the shares traded sideways for a while before rising to the threshold of this next split.

If we then look back to 2007, which was a 2:1 split, we see that the split was made at a pre-split price of only around $120, and a post-split price of $60.

Finally, when we look back to the 2001 split, we see that brought the price of one ADR down from around $100 to around $40.

In other words, it seems a share price of around $100-$120 used to drive the board to split the stock down to $40-$60 per share back in the 2000s, then $200 became the new splitting point over the past 10 years, with the old $100 pre-split target now looking like what we may expect as post-split prices going forward.

Why NVO's Stock Split Matters To Me

Even though I have access to trade the primary listing in Copenhagen, there are two main reasons I prefer to trade NVO on the NYSE instead:

1. I have many other positions in my portfolio in US dollars, but very, very few other names I would ever care to trade in Danish Krone. By trading NVO in US dollars, I avoid having to convert and hold a currency which isn't one of my top 10 currencies.
2. NVO has listed options , while NONOF only has warrants, as far as I could find.

To smaller individual investors and advisors like myself, a stock split makes listed options far more useful, because now a $100 stock has an option contract size worth around $10,000, which is large, but still much more manageable than $20,000 per contract. So although not as dramatic as the 20:1 stock splits of Alphabet or Amazon , every little split helps bring stocks into a price range where I can comfortably trade options on them, as well as marking milestones in the stock's long-term appreciation as seen above.

How The Big ETFs Hold Novo Nordisk

One reason I have been following Novo Nordisk, despite its expensive valuation, is that it is, as of this writing, the top holding in many of the largest ETFs tracking global ex-US stock markets, with the two of these being the iShares Core MSCI EAFE ETF ( IEFA ), and the iShares MSCI Intl Quality Factor ETF ( IQLT ). It is the second-largest holding in some other large international ETFs, including the Vanguard FTSE Developed Markets Index Fund ETF Shares ( VEA ), where Nestle's 1.52% weight comes in just ahead of Novo Nordisk's 1.36% weight. What all of these largest international ETFs have in common is that they all hold the Danish-listed NONOF rather than the US-listed NVO. This is probably because NONOF is the primary listing, because these large ETFs all have easy access to it, and because on many, but not all days, sees a higher daily share volume in Copenhagen than NVO sees in New York.

Of the US ETFs with the largest positions in US-listed NVO, all have positions that are significantly smaller than those of NONOF in IEFA, with the largest two being NVO's 1.36% position in the $3.25B Avantis International Equity ETF ( AVDE ) and a 5.82% position in the $440M VanEck Pharmaceutical ETF ( PPH ). These ETFs probably prefer holding ADRs rather than local listings because they are relatively small as far as ETFs go, and it may not be worth it for the portfolio manager and market maker to have to deal with a position listed in Copenhagen until the size is large enough to justify that.

That said, I don't see the stock split being a meaningful factor in any of the top 10 ETFs that hold either NONOF or NVO, because none of them are price weighted like the Dow Jones Industrial Average or Nikkei 225 are.

Conclusion

While I usually consider stock splits to be more cosmetic than anything else, I found NVO's latest split worth looking at both as a milestone in its long history of share price appreciation, and also for its benefit in making the size of an options contract smaller and more manageable. If NVO happens to trade sideways for the next three years, as it did after the last two splits, I would of course attribute this more to the currently expensive valuation rather than from anything to do with the split itself. That need to be able to capture some upside while protecting against the downside is exactly why I value the ability to trade options on NVO so highly, and now mostly need to revise my July article's option strategy simply by dividing all the strike prices by two.

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