In his book, You Can Be A Stock Market Genius, Joel Greenblatt (Trades, Portfolio) likens spin-offs to "hiding places of stock market treasures." With GuruFocus’s Spin-Off screener, you can find all recent spin-offs with their relative price performance. To keep members up to date so they will not miss any opportunities, we have provided an e-mail alert option to send members new spin-offs as soon as they are available. Select the e-mail alert link, then click "Create Alert" to have GuruFocus send you updates on newly added spin-offs. You can gauge overall spin-off sentiment by comparing the spin-offs issued in a similar time period. The All-In-One screener also provides a filter to access older spin-offs. In One Up On Wall Street, Peter Lynch advises to "see if there is heavy insider buying among the new officers and directors," to validate the merit of these ambiguous investments.
Above-Average Performance
GuruFocus’s research has proven most spin-offs provide above-average returns when held longer than one month from being spun off. Adding research promoted by Joel Greenblatt (Trades, Portfolio) that proved, "a very large number of spin-offs outperformed their industry peers by a suprising 10% per year," makes investing in these new companies sound quite enticing. Since companies spin-off quality divisions that are usually hindered by the parent company’s size, it is no surprise that investing in these offspring produce higher returns. (Median spin-off performance is used to negate the effects of outliers).
Unwanted Gems
The key to capturing the best of these high returns involves acquiring positions close to the spin-off date. Due to vague information on the new company, as well as disregard from Wall Street, these issues typically underperform during their first few months. Spin-offs are usually sent as a bonus or dividend to parent company owners and are discarded for multiple reasons. Peter Lynch goes further stating "instituitions dismiss these shares as pocket change." Sometimes owners sell the newly received spin-off to buy more parent company shares. Funds that own the parent company might have regulations that prohibit owning the spin-offs. But if the spin-off has a sound balance sheet with quality earning power and sells at an appropriate multiple, buying during underperformance can boost returns.
