Successful Spinoff Investments
In Joel Greenblatt’s first book, “You Can be a Stock Market Genius”, he stated two points that make a spinoff worth analyzing.
- Insiders are buying
- Institutional investors are selling (without regard to the investment merits)
Spinoff Performance with Heavy Insider Buying
I decided to do some experimenting with this. I looked back at all the Form 10-12Bs I could find within the past 10 years, and made a list of all the spinoffs. Then I took all the spinoffs that had heavy insider buying within a week of being spunoff (from secwatch.com). I then checked the 1st year performance of those stocks. Here are the results.
As you can see, the results are pretty impressive, all but one spinoff that had heavy insider buying within a week of being spun off outperformed the S&P 500.
Also, a recent spinoff, HHC, also had heavy insider buying within a week of being spunoff, and has outperformed the market since then, so might as well add that one to this list too.
Performance of Spinoffs Smaller Than Parents
It was hard to find the spinoffs that were indiscriminately sold by institutional investors, but since these are usually micro cap spinoffs that have mid-large cap parents, I decided to create a list of those spinoffs that were small compared to their parents.
It was hard to find all the information on the parent companies because there were many that were acquired or went private, so there were many spinoffs that were not included.
Still, I managed to get information on about 25 of them and checked their 1st year performance and here is what I found.
(click to enlarge)
As you can see, the results are quite satisfactory. For some spinoffs, I included the performance for a period shorter than 1 year because only looking at the 1-year performance can be limiting.
For one of the spinoffs, ALC, I couldn’t find what the market cap of the parent company was but I found out that it traded on a different exchange than ALC, and since that can be a reason for indiscriminate institutional selling, I decided to include it.
Of course, it would be best to do research on spinoffs before investing in them rather than just buying every spinoff that gets sold off by institutional investors or has heavy insider buying, but still, this data proves that spinoffs can make great investments.