Wall Street Has Missed these extremely attractive Spinoffs
Market Overview:
Confirmed Uptrend on the major Indexes. S&P and Dow at All time highs. A few days of distribution (institutional selling).
Today’s bounce in small caps $(IWO) is very constructive.
Legal Disclaimer: The Author is not a registered investment advisor. Investing involves risk. Financial information provided is believed to be accurate but we are not responsible for inaccuracies. I may own these securities for myself or in accounts that I manage. Past performance is no guarantee of future returns.
Recent Stock Recommendations:
Yiren Digital $ YRD
Stock is doing well. Institutions are buying in size
Why Spinoffs are so attractive:
You probably think in a world dominated by behemoths like Blackrock and Citadel, that the little guy doesn’t ever have an advantage.
Well it’s true that the average investor rarely has an advantage on Wall Street.
Except in one area: spin- offs
A spin off is when a large company decides to spin off one of its divisions into a separately traded public company.
An example you’re probably familiar with is when IAC Interactive spun off Match group - home to popular dating apps like Tinder.
There are multiple reasons why spin-offs are great for investors.
For one, most investors tend to sell the shares they’re given. They see it as free money and sell the shares.
Most institutional investors are restricted by their charters to only invest in stocks of a certain size aka large cap, so they’re required to sell. Finally, many institutional investors don’t want to invest the time researching the new company, so they sell.
Even though many investors are selling, managements of these companies are incentivized to perform and are given stock options.
All of this institutional selling can create great opportunities if you’re willing to research these new companies.
The advantage to us is that it takes a while for Wall Street firms and hedge funds to find these companies and begin to research them.
No one knows about them. That’s when you can find some true gems. 💎
“You can make a pile of money investing in spin-offs.
The facts are overwhelming.
Stocks of spin-off companies significantly and consistently outperform the market averages.”
– Joel Greenblatt, Gotham Capital, Generated 50% returns annually for a decade
Here is why the dynamics of Spinoffs make it an essential area for an investor to analyze:
·Studies have shown that Spinoffs have historically beaten the market by over 10 percent as the pure, newly focused business takes off.
Compensation for executives can be more closely correlated with business performance. The company will become smaller, which will increase the executives' motivation and sense of ownership.
Separating companies allows each entity to be properly valued and can sometimes unlock a “conglomerate discount."
Due to the likelihood that the company would be small and lack a roadshow, it is under-followed. As a result, there are more chances for investors to discover returns greater than the index.
A 20 year study shows that Spinoffs are likely to be taken over. Roughly 35 percent are acquired around the two-year mark post-Spinoff.