Below is an excerpt about spinoff investments from Joel Greenblatt’s You Can Be A Stock Market Genius.
1. Spinoffs, in general, beat the market.
2. Picking your spots, within the spinoff universe can result in even better results than the average spinoff.
3. Certain characteristics point to an exceptional spinoff opportunity:
- Institutions don’t want the spinoff (and not because of the investment merits).
- Insiders want the spinoff.
- A previously hidden investment opportunity is uncovered by the spinoff transaction (e.g. a cheap stock, a great business, a leveraged risk/reward situation).
4. You can locate and analyse spinoff prospects by reading the business press and following up with the SEC filings.
5. Paying attention to “parents” can pay off handsomely.
6. Partial spinoffs and rights offerings create unique investment opportunities.
7. Keep an eye on the insiders.