Spinoffs

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.

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Spinoffs Library Archives
SUNPOWER CORP. $9.86 is a sell. The company (Nasdaq symbol SPWR; Manufacturing sector; Shares outstanding: 170.0 million; Market cap: $1.7 billion; No dividend paid; Takeover Target Rating: Medium; www.us.sunpower.com) makes solar-electric power panels and other products primarily for the commercial and residential market segments....
EXPEDIA GROUP INC. $88 is a buy. The company (Nasdaq symbol EXPE; Consumer sector; Shares outstanding: 141.0 million; Market cap: $12.4 billion; Dividend suspended in 2020; Takeover Target Rating: Medium; www.expediagroup.com) operates the world’s largest online travel platform....
The upcoming spinoff or sale of Marathon Petroleum’s gas station/convenience store business could give the stock a short-term boost. (COVID-19-related travel restrictions have caused the shares of this oil refinery operator to drop 42% since the start of 2020.) However, following the split, the company’s remaining operations will probably continue to struggle until the economy recovers.


MARATHON PETROLEUM CORP....
We remind readers to pay attention to activist investors, as they tend to look for the same attributes we do—undervalued assets that can be spun off or sold. Below is an activist target we see as a buy for aggressive investors. There’s also another targeted company—one we don’t recommend despite a recent acquisition to bolster its product line.


COMMVAULT SYSTEMS INC....
Here’s an Excerpt from the June 16 issue of Advice for Inner Circle Pro Members:


“China’s shift away from democracy and toward authoritarian rule could attract more Chinese immigrants to Canada, leading to population and economic gains for this country, and losses for China....
Potato-processer Lamb Weston has more than doubled since food giant Conagra spun it off on November 9, 2016. Investors received one Lamb Weston share for every three Conagra shares they held.


While the emergence of COVID-19—and the closure of most restaurants—has pushed down Lamb Weston shares, the stock should rebound as more regions ease their lockdowns....
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....
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....
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 sectors).


On June 22, 2017, Brookfield Asset Management Inc....
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 as antifreeze....