BLACKBERRY LTD. $6.92 is still a hold. The company (Toronto symbol BB; Manufacturing & Industry sector; Shares outstanding: 552.0 million; Market cap: $3.8 billion; No dividend paid; Takeover Target Rating: Medium; www.blackberry.com) quit developing smartphones in 2016 to concentrate on its more-promising security software. Specifically, the company is focused… Read More
One of the ways a company can try to unlock its own hidden value is by creating a separate company out of a corporate subsidiary. The parent company can either sell stock in the new company to the public, or spin it off—hand the stock out to its own investors.
Often, the parent company starts by selling a portion of the new company to the public, to establish a market and a following among investors. That way, by the time of the spin-off, stock in the new company may be liquid enough to be sold relatively easily, or retained with some confidence as a worthwhile investment.
In our experience, and in most academic studies of the subject, this helps the parent and its corporate spinoff. Both generally do better than comparable companies for at least several years after the spinoff takes place.
When a company carries out a spinoff, it sets up one of its subsidiaries or divisions as a separate company, then hands out shares in the new company to its own shareholders. It may hand out the shares as a special dividend, or give its shareholders an opportunity to swap shares of the parent company for the shares of the newly established spinoff.
Study after study has shown that after an initial adjustment period of a few months, stock spinoffs tend to outperform groups of comparable stocks for several years. (For that matter, the parent companies also tend to outperform comparable firms for several years after a spinoff.) The above-average performance of spinoffs makes sense for a couple of reasons.
First, company managers naturally prefer to acquire or expand their assets, not get rid of them. Getting rid of assets reduces a company’s total potential profit. The management of a parent company will only hand out a subsidiary to its own investors if it’s nearly certain that the subsidiary, and the parent, will be better off after the spinoff than before.
Second, spinoffs involve a lot of work and legal fees. Companies only have an incentive to do spinoffs under two sets of favourable conditions: When they feel it isn’t a good time to sell (which often means it’s a good time to buy); or, when they feel the assets they plan to spin off will be worth substantially more in the future, possibly within a few years.
Quite often, a big company will spin off a small subsidiary because it feels the subsidiary is a tiny gem, but that it’s too small to make an impact on the much larger financial statements and market capitalization of the parent.
At TSI Network we’ve had great success with a number of spun off stocks over the years. That’s especially true of the many spinoffs we have recommended that have gone up after they began trading, and have later attracted a takeover bid at a substantial premium over the market price.
Needless to say, things don’t always work out this well. Spinoffs and their parents do sometimes run into unforeseeable woes. But on the whole, in investing, spinoffs are the closest thing you can find to a sure thing.
See how you can make the most of these special investment opportunities by reading our special free report Spinoff Stock Investigator: All You Need to Know about Reaping the Rewards of Spinoffs.
Spinoffs Library Archives
DANAHER CORP. $176 is still our #1 Spinoff Buy for 2020. The company (New York symbol DHR; Manufacturing & Industry sector; Shares outstanding 707.2 million; Market cap: $124.5 billion; Dividend yield: 0.4%; Takeover Target Rating: Medium; www.danaher.com) is a leading maker of precision-testing equipment and tools. Its major customers… Read More
VALVOLINE INC. $20 is a spinoff buy for aggressive investors. The company (New York symbol VVV; Manufacturing & Industry sector; Shares outstanding: 185.0 million; Market cap: $3.7 billion; Dividend yield: 2.4%; Takeover Target Rating: Medium; www.valvoline.com) is a leading maker of motor oil, lubricants and other automotive chemicals such… Read More
Trisura is a good example of the third part of our three-prong approach to investing—downplay stocks in the media/broker limelight (the other two parts, of course, are invest in well-established companies; and spread your money across most if not all of the five main economic… Read More
US FOODS HOLDING CORP. $20 is a hold. The company (New York symbol USFD; Consumer sector; Shares outstanding: 220.3 million; Market cap: $4.4 billion; No dividend paid; Takeover Target Rating: Medium; www.usfoods.com) is one of the largest foodservice distributors in the U.S. It services more than 300,000 restaurants and… Read More
Despite the negative impact of COVID-19, these two spinoff firms demonstrate our belief that spinoffs are the closest you can get to a sure thing in investing. Even after their impressive gains, we feel both Fortive and Yum China are in a strong position to… Read More
The COVID-19 pandemic has forced Nielsen to delay the spinoff of its Global Connect business until 2021. Even so, we’re confident the plan will ultimately reward investors with a stake in two pure-play companies, better focused on improving their core businesses.
NIELSEN HOLDINGS PLC $15 is… Read More
We pay attention to activist investors because they look for the same thing we do—hidden assets that a company can either spin off or sell. eBay, below, is a great example. Still, not every stock that activists target—GameStop is a prime example—is worth buying.
EBAY INC… Read More
The coronavirus pandemic cancelled most vacation plans. However, reopening of the economy should spur strong demand for domestic travel—especially for lodgings that guests reach by car. Both Wyndham Destinations and Wyndham Hotels and Resorts should benefit from that surge.
The two companies were formed on June… Read More
TEGNA INC. $10 is still a buy. The company (New York symbol TGNA; Consumer sector; Shares outstanding: 215.8 million; Market cap: $2.2 billion; Dividend yield: 2.7%; Takeover Target Rating: Medium; www.tegna.com) owns 62 TV and four radio stations in 51 markets. It also offers online advertising and marketing services.
Two… Read More
In April 2020, the old Madison Square Garden separated its entertainment group from its sports franchises.
Shareholders received one share of Madison Square Garden Entertainment Corp. as a tax-free distribution for each share they held. The remaining firm then became Madison Square Garden Sports Corp.
The Dolan… Read More
IAC/INTERACTIVE CORP. $231 remains a buy. The Internet and media company (Nasdaq symbol IAC; Manufacturing & Industry Sector; Shares o/s: 84.8 million; Market cap: $19.6 billion; No dividend paid; Takeover Target Rating: Lowest; www.iac.com) still plans to hand out its remaining 80.4% stake in MATCH GROUP INC. $75 (Nasdaq symbol MTCH;… Read More
These two companies hope to boost investor value with spinoffs. However, their deep-rooted problems will more than offset any short-term benefit for investors.
L BRANDS INC. $11 is a sell. The merchant (New York symbol LB; Consumer sector; Shares outstanding: 276.5 million; Market cap: $3.0 billion; Dividend suspended… Read More
Thanks to the coronavirus pandemic, prominent activist investors are targeting quality companies they see as bargains, including fast-food operator Restaurant Brands and cloud-computing specialist Box. However, we see just one of them as suitable for your new buying.
RESTAURANT BRANDS INTERNATIONAL INC. $70 is a buy. With… Read More
On April 1, 2020, the old Arconic Inc. split into two new companies for investors: Howmet Aerospace and Arconic Corp.
We feel this breakup, like most spinoffs, will work out well for investors over time. However, your shares in both new companies will likely move sideways… Read More
The coronavirus pandemic and the resulting economic downturn has increased the risk of all stocks. However, there are still plenty of appealing opportunities for investors with a long-term outlook.
Those include two new spinoffs—Otis and Carrier—from aerospace giant Raytheon Technologies, which is itself a newly formed company.
The virus, unfortunately,… Read More
On April 3, 2020, United Technologies Corp. completed its merger with Raytheon Co.—the most-recent in a series of steps to unlock investor value. The merger gives you a stake in Raytheon Technologies Corp. (New York symbol RTX)—now the leading maker of commercial and military aircraft… Read More
HP INC. $15 is a hold. The company (New York symbol HPQ; Manufacturing sector; Shares outstanding: 1.4 billion; Market cap: $21.0 billion; Dividend yield 4.5%; Takeover Target Rating: Medium; www.hp.com) took its current form on November 1, 2015, when the old Hewlett-Packard Co. split into two firms—HP Inc. (which… Read More
Foodmaker Post Holdings recently initiated a “carve-out,” using an IPO to sell a portion of its active nutrition business, BellRing Brands. That now pure-play firm makes protein bars, shakes and nutritional supplements.
Post used the proceeds from the sale to pay down its debt and strengthen… Read More
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