Spinoffs frequently struggle immediately after they are freed from the clutches of their former parent company. Shareholders of the larger company are given stock in a company they may not want and, because of the smaller size, many funds can't hold the shares and must liquidate them -- the result is pressure on the price.
According to The Wall Street Journal, recent spinoffs have been beaten down [subscription required] even more than investors have come to expect. Broadridge Financial Solutions, Covidien, Tyco Electronics, and Discover Financial Services, have been creamed in the short-time that they've been trading.
Does this present an opportunity for patient investors? I haven't looked at all of these companies individually but the statistics provide very compelling evidence that spinoffs deserve at least a look -- and these ones are probably a good place to start.
For an excellent look at how to profit from spinoffs, pick up a copy of Joel Greenblatt's classic You Can Be a Stock Market Genius.
Note to the folks at StockPickr: Can you put together a portfolio with all the latest spinoffs? I can't seem to find one...
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Reader Comments (Page 1 of 1)
8-24-2007 @ 4:02PM
BP said...
Stockpickr has it setup, though it hasn't been updated in a while.
http://stockpickr.com/members/port/Spinoff-101/
9-03-2007 @ 11:56AM
themilliondollarportfolio said...
There is also a pretty good ETF that focuses on spin-off exclusively - ticker symbol (CSD), from Claymore. Looks like it has done quite well lately. http://finance.yahoo.com/q/bc?t=1y&s=CSD&l=on&z=m&q=l&c=&c=%5EGSPC
Good luck, keep us posted.
Yours,
http://www.themilliondollarportfolio.com