Spinoffs are quite the rage. But not for the reasons Joel Greenblatt told us about back in ‘97. Rather, we’ve seen a number of implosions in the spinoff universe of late.
@y0ungmoneyblog has an exciting post on 25 spinoffs that blew up [link]
We’re bringing the idea of spinoff blow ups to 2015. As part of the catalyst watchlist, here’s a look at how the major spinoffs [over the last twelve months] have done.
First, Strategas found that the median spinoff has underperformed the S&P 500 by 2.6 percentage points over the last six years. The broad strategy of investing in all spinoffs just doesn’t work anymore.
You know the selling point for spinning a company off, and the thesis for why they underperform in the near-term, so I won’t rehash that here. Instead, let’s assume that Joel had the right idea, here’s some of the worst performing spinoffs of 2015; and more importantly, a few names worth buying. Keys - avoid ridiculous levels of debt, those coming out with “high” valuations, and those spinoffs that are actually fundamentally broken business (read: parent is cutting the cord on its POS segment).
Notable readings for certain spins:
$CC - Devin Stearns
$JMG - Horizon Kinetics
$CSAL - J. Allen
$SPNE - Marketfolly
$HZN - Activist Stocks