Greenblatts first book was "How to be a Stock Market Genius". In it, one item he discussed as historically outperforming was spin offs. I thought it might be interesting to look at a spin off that occurred two years ago: ITT.
ITT split into XYL (a water company), XLS (defense contractor) and ITT (everything else) in October 2011.
XYL was spun off at a price of 25.76. They are now 34.50, so that is a gain of 34%. Toss in another 90 cents of dividends and you are at almost 38%. Not bad. In addition, they actually dropped out of the gate (Greenblatt says they do as mutual funds etc often sell off) to 23.90 on November 1st 2011. So if you had bought then, your gain would be 48%.
XLS was spun off at 11.30. They are now at 16.49. Tossing in 80 cents of dividends and you have a sweet gain of 53%. Again, if you had waited until November 1st to buy, the price had dropped to 8.94 (what a bargain). Then you would have had a very sweet gain of 93%.
ITT started at 20.17. They are now 39.73. Looks like about a double with 80 cents of dividends. They did not drop as much out of the gate, but in December closed at 19.33.
So if you had put equal amounts in all three at the beginning, you would be up 62%. If you had waited a month, like JG suggests, you would be up 80%. The R3K is up 48% in that stretch and you to would have been a stock market genius.
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Shh... Don't give away all the secrets.
Funny, I re-read the book a few months back and decided to give the spinoff realm a shot.
The VLO spinoff of CST
The DF spinoff of WWAV
The SAI spinoff of LDOS
All have been making decent returns, but I do plan on holding for about 2 years at least (Greenblatt claims it takes that long for the markets to shake off any spinoff uncertainty, and recognize the value of the fundamentals)
The only real pain is trying to figure out what your cost basis is after the spinoff.
Another is Expedia, EXPE, spinning off Trip advisor, TRIP. I believe the initial price was around $28 and its now at $82, less than 2 years later.
That being said, these results need to be compared to how the market has done over the same time span.
Is there anyplace on the web to hear about spin offs either right before or after they happen?
One more... NOC spun off HII in early 2011.
HII is just short of doubling over that time frame. About $38 to $71 NOC has had a similar return over the same time frame.
There was a yahoo group formed to discuss and share upcoming spin offs. I do not think it is active any longer, but perhaps it has migrated.
Psx has also doubled since being spun from COP.
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