Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

How to Profit from Massive Spin-Offs with Just One Play

Companies / Tech Stocks Oct 23, 2014 - 01:25 PM GMT

By: Money_Morning


Michael A. Robinson writes: I love corporate spin-offs – and you should, too.

With spin-offs, companies unlock hidden values in their operations and pass them on to shareholders – offering low risks and high probabilities of market-beating profits.

And the past month or so has produced a bonanza.

First, eBay Inc. (Nasdaq: EBAY) said it is spinning off its very successful PayPal digital payments firm. Then, Hewlett-Packard Co. (NYSE: HPQ) announced that it plans to divide itself in half.

And most recently, security software maker Symantec Corp. (Nasdaq: SYMC) joined in and said it's splitting in two.

Overall, spin-offs are estimated to be worth $1.6 trillion so far this year.

Here's the hitch….

Breakin' Up Is Good for You

As promising as all that money sounds, most of these deals won't take effect until the second half of next year. But I've uncovered a way to take advantage of the growing market for spin-offs right now.

And we'll do it with a single investment that has beaten the market by 65% over the last two years.

Here's how…

I've been around high-tech investing for more than 30 years now, and I haven't seen this many spin-offs since 2000.

Spin-offs are not limited to high-tech, of course. However, of the roughly 30 major spin-offs in the works, 19 – or nearly two-thirds – are related to tech or the life sciences.

According to forecasting firm Dealogic, corporations have sold or spun off $1.6 trillion worth of subsidiaries and business lines globally so far this year. And by its measures, Dealogic says this is the most active the spin-off market has been since 2007.

I pay attention to spin-offs because I know just how lucrative they can be for tech investors. And the research backs me up.

For instance, a Lehman Bros. study found that spin-off companies beat the market by 40% in the first two years, while a Penn State University study found a three-year return of 76% – enough to beat the market by 31%.

In other words, spin-offs create "easy money."

Before we get to our own spin-off investment, let's take a look at this early fall's trio. We're already invested in a couple of them.

I first recommended eBay to Strategic Tech Investor readers in April 2013. And I agreed with activist investor Carl Icahn's quest to split up the online auction firm earlier this year.

The PayPal spin-off is going to be a major boon for eBay shareholders, who already saw their shares jump 7.5% on the news. The whole digital payments realm is finally opening up – the recently announced Apple Pay offering from Apple Inc. (Nasdaq: AAPL) and AliPay from Alibaba Group Holding Ltd. (NYSE: BABA) are two great new examples.

And PayPal, as the "growth" component of eBay, is poised to capitalize.

Sales at PayPal nearly tripled during the five-year stretch that ended in 2012, and the eBay unit now "facilitates" $1 of every $6 spent online. But PayPal is ready to leapfrog eBay's core "marketplace" business. In the calendar second quarter, PayPal sales jumped 20% to $1.95 billion, while eBay's mainstay business saw its revenue advance 9% to reach $2.17 billion.

Hewlett-Packard also has been a recommendation around here for a while. I first shared it with Strategic Tech Investor readers in July 2013, and it clobbered IBM Corp. (NYSE: IBM) in our "Clash of the Tech Titans" this past July.

And since then, HP shares have reached peak gains of 56.8%.

In the split, HP Inc. will devote its operations to PCs and printer sales. Hewlett-Packard Enterprise will serve large organizations by focusing on computer servers, data-storage equipment, software and consulting services.

HP said the change will allow the enterprise unit to focus on such growth areas as cloud computing and Big Data at a time when PC sales are week, declining 10% last year.

And at Symantec, one spin-off will focus on computer security, including the company's well-known Norton antivirus software. The other will specialize in information management, including backup and recovery, archiving and "eDiscovery."

For this deal, think of the security unit as the "parent company." Symantec said investors will receive shares in the information management unit as a special tax-free dividend.

The One Investment

As much as I like these and other corporate spin-offs, the market is moving so rapidly that it's easy to get overwhelmed examining the growing list of opportunities.

And spin-offs pose some other challenges for investors. For instance, it's hard to keep track of the actual spin-off dates of record to know just when to buy. In some cases if you get in early, you may tie up your cash for months waiting for the tax-free stock dividend.

That's why every tech investor ought to take a close look at the Guggenheim Spin-Off ETF (NYSE Arca: CSD), which specializes in just these kinds of deals. Started in December 2006 and now with 33 holdings, CSD is the only ETF focused on spin-offs.

Like investing in spin-offs themselves, CSD offers modest risk to investors and a good chance at high returns – except even more so.

CSD invests in a broad array of sectors such as energy, restaurants, and entertainment. And it holds several intriguing tech and life sciences firms in its portfolio.

For instance, Zoetis Inc. (NYSE: ZTS) is the largest independent company in the animal health sector. It is CSD's second-largest holding and makes up 5.5% of the fund.

Spun off from Pfizer Inc. (NYSE: PFE) in June of last year, Zoetis is a sprawling global enterprise with operations in 60 countries. Zoetis derives about 75% of sales from livestock products and the rest from the pet market. It counts 300 separate products lines, including vaccines, medicinal feed additives, and pharmaceuticals.

With 60 years of experience. Zoetis had $4.6 billion in sales last year. Trading at $37 a share, it has an $18 billion market cap and strong financials. It has operating margins of nearly 24% and a 50% return on equity.

CSD also allows you to tap into the early-stage biotech boom without taking on all the risks of investing in pharmaceutical companies without products on the shelves yet. The ETF owns shares of Prothena Corp. Plc. (Nasdaq: PRTA), a biotechnology firm focused on neurodegenerative disorders such as Parkinson's.

Prothena specializes in making antibodies that target improperly folded proteins. Its pipeline also includes discovery-stage programs that ultimately may offer treatments for Alzheimer's disease and type 2 diabetes.

Prothena's story may be the most intriguing in CSD's portfolio. Elan Corp. Ltd. acquired Prothena's forerunner back in 1996. Following that move, Elan itself went through a demerger of its early R&D unit in December 2012, and Prothena was born.

Today, Prothena has rapid sales growth, a market cap of $543.1 million, $303 million in cash on hand, and no debt. It makes up 0.75% of CSD.

Another CSD holding, ADT Corp. (NYSE: ADT), is best known as a home security firm. But it offers much more than that.

Thanks to research and development in its longtime home security business, the company has quietly become a leader in advanced sensor technology. And those advanced sensors have become a big part of ADT's smart-home and medical tech divisions, both of which are also tied to mobile technology.

ADT remains the industry leader in tech-centric home and small-business security. With a total of 6.5 million clients, ADT has 25% of the $11 billion home security market. It also ranks first in serving small businesses, where it commands a 13% share of a $2.4 billion market.

ADT is the fund's fifth-largest holding and makes up 4.89%. It was spun off from onetime global industrial conglomerate Tyco International Ltd. (NYSE: TYC), now focused on fire prevention, in October 2012.

With 135 years in the field, ADT had annual sales of $3.31 billion in 2013. The company has a $5.86 billion market cap with 20.7% operating margins and an 8.4% return on equity.

With exciting holdings like that and excellent performance since 2006, the Guggenheim Spin-Off ETF is a very cost-effective way to target the entire spin-off boom with on single investment

The ETF trades at roughly $43.75. Over the past two years, it has eclipsed the overall market, rising 60% compared with 36.6% for the Standard & Poor's 500 Index.

It's one of those balanced investment vehicles you can count on for the long haul.

After all, spin-offs will likely continue to be a major way that tech and other firms unlock hidden (and tax-free) value for the shareholders.

And with this savvy ETF, you get the power of having 33 high-quality spin-offs working for you – all at the same time.

Source :

Money Morning/The Money Map Report

©2014 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules