Stock Spin-Offs

Spin-off stocks have been described as one way to find names that will move against a downtrending market, but that doesn’t mean that we can just throw money at them and consistently make money.

Harking back to Gerald Loeb’s admonition that you need a reason and a move before entering a position, yes, stock spin-offs do provide a reason, but the move has to present itself.

Remember that 80% of stocks move along with the overall market. If you are going to enter a situation in which you know that 4 out of 5 stocks are going to follow the trend down, you’d better let the price and volume to come to you.

You can decide when that move is happening in a number of ways and the one you choose is up to you. There are several ways to go, ideally you can find one that makes sense to you and that is clear enough that you can do use it consistently.

Tags: spin-off stocks, trend, Value Investing

The following are recent stock spin-offs of which I am aware. If you find other, please let me know and I’ll add them.

John Bean Technology (JBT) from FMC Technology (FTI)

Home Shopping Network (HSNI) from IAC

TREE.com (TREE) from IAC

International Leisure Group (ILGI) from IAC

Ticketmaster (TKTM) from IAC

Patriot Coal (PCX) from Peabody Energy (BTU)

Time Warner Cable (TWC) from Time Warner (TWX)

Dr. Pepper Snapple (DPS) from Cadbury

Brinks Home Security Holdings (CFL) from The Brinks Company (BCO)

Canadian oil sands unit, Cenovus from Encana (ECA.to),  {early 2009)

Tags: stock spin-off

The stock spinoff of Orchard Supply Hardware from Sears Holdings Corporation was announced recently in a company press release .

Sears Holdings Corporation describes itself in perhaps a telling way relative to this spinoff as follows:

“About Sears Holdings Corporation

Sears Holdings Corporation is the nation’s fourth largest broadline retailer with over 4,000 full-line and specialty retail stores in the United States and Canada.  Sears Holdings is the leading home appliance retailer as well as a leader in tools, lawn and garden, consumer electronics and automotive repair and maintenance.  Sears Holdings is the 2011 ENERGY STAR® Retail Partner of the Year.  Key proprietary brands include Kenmore, Craftsman and DieHard, and a broad apparel offering, including such well-known labels as Lands’ End, Jaclyn Smith and Joe Boxer, as well as the Apostrophe and Covington brands.  It also has the Country Living collection, which is offered by Sears and Kmart.  We are the nation’s largest provider of home services, with more than 11 million service calls made annually.  Sears Holdings Corporation operates through its subsidiaries, including Sears, Roebuck and Co. and Kmart Corporation.  For more information, visit Sears Holdings’ website at www.searsholdings.com. ”

Notice that they don’t mention the soon-to-be stock spinoff, Orchard Supply Hardware,  specifically in there at all even though Orchard operates 89 hardware stores that apparently do a good job and make money.   Further, when I clicked on the link above and poked around looking for more information on Orchard Supply Hardware,  I gave up before I found it.

Maybe I gave up too soon, but Orchard was not front and center, which leads me to believe that Orchard Supply Hardware is worth a closer look as a buy after the spinoff dust settles.  Management of Orchard Hardware Supply very well might be better off on its own, not an invisible part of Sears Holdings.

Tags: Orchard Supply Hardware, sears holdings corporation, shld, stock spin-off, stock spinoff

ITT Corporation has announced that it intends to use a stock spin-off process to separate the company into three parts:  water technology, defense technology, and the rest of ITT that will be left with those two off on their own.

The is no lack of coverage or awareness of this or most other stock spin-offs now.  Perhaps there was a time when spin-off stocks traveled under most investors’ radars, but that advantage for savvy value seekers has been diluted by websites, blogs, and even highly touted, heavily sold “all-you-to-do-to-beat-the-market” e-books and courses.

The ITT spinoff even has its own website to explain exactly what is going to happen,  http://www.transformationitt.com .  “Three Strong Businesses Positioned to Create Significant Value for Shareholders as Standalone Companies” is apparently their motto.  The pro forma revenues are reported at $3.6 billion from water, $5.8 billion from defense, and $2.1 billion from ITT which they describe as “a diversified global manufacturer of highly engineered industrial products.”  So you and everyone else has more than enough data to get totally bored or confused.

So what’s an individual investor to do?  Other than give up the whole thing, of course.

First off, you can just read the information, draw your own conclusions and make your best estimates of the potential for the parts of the transaction, parent stock and spin-off stock.  That can work quite well actually.  Do you think defense spending will be cut?  Do you think that the world demand for clean water will be a profitable area in the future?  No one has a chart with data on the right hand side that goes beyond today’s date.  Take a deep breath and make your own predictions.  They’re likely to be as good as anyone elses.

As far as I can tell at this point, this spin-off does show signs of being a situation in which the sum of the parts could turn out to be worth more than the whole.

• Though the underlying theme is engineered solutions to complex challenges, each is working in an identifiably different area of application.
• All three entities are in the business of keeping an increasingly efficient flow of limited natural resources flowing to the world’s economies.
• It doesn’t look like the spin-offs are an attempt to dump toxic assets.
• Top executives from the current ITT are going with the new companies.

On the other hand, none of them seems as though it is going to be so different from the current parent company that they will necessarily be automatically dumped by current shareholders creating value that way and they haven’t told us how debt will be apportioned among the three companies.  So, watching, reading, and trying to put it all together is going to be necessary.

Another way to go is to pick some measurable characteristic(s) of the companies’ operations that make sense to you for which you have access to accurate information.

This can take a bit of digging,  but if you find something that others may not be taking into account, it can be well worth the effort.

Ratios can be helpful in this regard because they allow you to compare the data across several companies.  The challenge here is to make an accurate decision about what companies  to compare each component to.   It’s fairly easy to find them for the current configuration in free content on the internet.   For the current ITT  the Morningstar website lists the price/book ratio to be 2.6,  price/sales 1.0, forward Price/Earnings 12.7, and Price/Cash Flow 12.8.  And often, others will even do some calculations for each component of the spin-off for you, especially for the high visibility spin-offs like this one.

Take advantage of those.

As with most stock spin-offs, there is plenty of time to watch the process unfold and decide if, when, and where to enter.  Make the trade come to you.

Tags: ITT, stock spin-off, stock spin-off investing, Value Investing

In writing The Daily Trading Coach:  101 Lessons for Becoming Your Own Trading Psychologist it was the author’s stated intention to “. . . give you the tools to become your own coach, so that you can guide your own professional and personal growth.”  And, I would have to say that I think he did a quite good job of that.  The tools for just about any situation are in there.

Will they all fit psychological trading challenge of yours or mine?  Probably not all, because that simply is not possible, but he does provide enough general principles and specific recommendations for personal exploration and action that it will at least be a good starting point.

If nothing else, it would be worth reading the book just to understand Dr. Steenbarger’s observation that if you were going to set up a learning situation in a laboratory specifically to make an animal anxious and ineffective, it would look much like the stimulus-reward relationships that occur in the financial markets.  Of course, his suggested “work-arounds” for the markets’ “crazy-making” rewards, punishments, apparent patterns, unpredictablility, changeability, and chaos are invaluable for those who travel these waters.  But, still, sometimes it is helpful just to get some validation that, yes, this is a strange place indeed.

Who is the book for?

The book is appropriate for anyone who is involved with the financial markets, whether personally or professionally.

It was written by a psychologist who has consulted to trading firms and coached active traders for many years as well as trading himself.  His examples and language reflect this experience, as they should.

Given that, if you view yourself as an investor, rather than a trader, you may conclude that this book is not for you.  From my perspective,  this would be a mistake since whether we buy something with the idea of holding it for a minute, a day, or a decade, our intention is to eventually sell it for more than we paid for it.  We are all traders.  It is just our time frames that differ.

What’s in it?

The book consists of 10 chapters, each with 10 lessons, with lesson #101 being in the conclusion.  They are

1.   Change: The Process and the Practice

2.   Stress and Distress: Creative Coping for Traders

3.   Psychological Well-Being: Enhancing Trading Experience

4.   Steps Toward Self-Improvement: The Coaching Process

5.   Breaking Old Patterns:  Psychodynamic Frameworks for Self-Coaching

6.   Remapping the Mind:  Cognitive Approaches to Self-Coaching

7.   Learning New Action Patterns: Behavioral Approaches to Self-Coaching

8.   Coaching Your Trading Business

9.   Lessons from Trading Professionals:  Resources and Perspectives on Self-Coaching

10.  Looking for the Edge: Finding Historical Pattern in Markets

What might be a challenge in getting the most out of it?

Probably, first on the list would be that there is so much information in this book that it can feel overwhelming.  True, the author says up front that it is not necessary, nor is it intended, to sit down and read it straight through.  Rather, it can be used as a reference book, working on whatever chapter and lesson seems to apply to you at the moment.  ( Obviously, you can’t do this if you are going to write a book review, so perhaps my view is a bit skewed in this regard. )

The book often seems to have been written for mental health professionals or at least someone who is familiar with the lingo of psychology, therapy, and coaching.  This is not a huge limitation, but sometimes if the reader is not at all familiar with a concept or term, a quick trip to Wikipedia or some other source could be a good idea.

And, finally, when it comes to approaches to dealing with problems that come up, the ones that he describes are not the only ways or necessarily the best ways to go for each individual.  This is one of those places where I do think Dr. Steenbarger has done an excellent job at getting the reader started, even where it may not provide a complete solution.

Overall Opinion?

This is an excellent book that accomplishes most of what it set out to do.  The most basic challenge to the self-coach, even armed with a resource like The Daily Trading Coach, is to set the goals and stick with the program.  What else is new?

Disclosure: The publisher of this book provided me with a copy to read for doing this review.  I did read the whole book, but did not do the exercises.

Tags: book review, Brett Steenbarger, The Daily Trading Coach, trading coach, trading psychology

Here’s another article that is positive on the Sunhealthcare/Sabra spinoff posted at the Motley Fool website, that might be helpful and might not.

It has been said that the purpose of thinking is to be able to stop thinking and I have found that there are few better ways to keep stopped thinking from sneaking back than finding someone who agrees with my decision.

How do you know when careful research is slipping over into self-cheerleading?  I for one have never been certain.  If you have a tendency to never want to stop taking in data, then you you might want to watch out.

This is one of those cases where Gerald Loeb’s admonition to always have reason and a confirming move in price is probably a good idea.

Tags: sabra, sbra, spinoff, sun healthcare, sunhd

The Orange County Business Journal has published an article on the Sun Healthcare spinoff that fills in a bit more information on what’s happening. On the premise that the local newspaper is likely to include things that the national sources don’t have room for, I am passing the link on here.

Tags: sbra, stock spinoff, sun healthcare, sunh

Sun Healthcare, SUNH,  has reported that if all goes as expected at the shareholder meeting on November 4, 2010, they are going to break their company into two parts by means of a stock spin-off.  When it is all done there will be two publicly traded companies: Sun Healthcare which will own the operating assets and Sabra which will own the real estate assets.

The Sun Healthcare company announcement spells out step by step how it will occur.  I found the description rather confusing and did better when I could see  it out graphically in their May 27, 2010 SEC filing.

My best take on what is going to happen is that, first,  current Sun Healthcare shareholders will receive all of the the shares of the wholly owned subsidiary, SHG Inc. that apparently owns the operating assets., and then what’s left of SunHealthcare after that will be merged merged into its wholly owned subsidiary Sabra Healthcare REIT, Inc., which owns the operating assets.

When it is all done if you are a shareholder in the current Sun Healthcare, instead of owning one stock in a company with two subsidiaries, you will own the operating assets portion of the current company which will be called the Sun Healthcare Group (SUNH) and you will also own Sabra REIT (SBRA) which will own the real estate assets portion of the current company as two separate stocks.

Right now, Sun Healthcare does not pay a dividend.   The company has stated that Sabra intends to elect REIT status in January 2011,  so presumably that will change.

If the company is correct that the market is not recognizing their true value because it is essentially an REIT and a healthcare services provider all rolled into one, then this should result in the total market value of the two parts increasing.  Are they correct?  Eventually that question will be answered on your quote screen.

Disclosure:  I do not own shares in SUNH.  I have no financial relationship with the company.

The company describes itself as follows:

About Sun Healthcare Group, Inc.

Sun Healthcare Group, Inc.’s (NASDAQ: SUNH) subsidiaries provide nursing, rehabilitative and related specialty healthcare services principally to the senior population in the United States. Sun’s core business is providing, through its subsidiaries, inpatient services, primarily through 166 skilled nursing centers, 16 combined skilled nursing, assisted and independent living centers, 10 assisted living centers, two independent living centers and eight mental health centers. On a consolidated basis, Sun has annual revenues of $1.9 billion and approximately 30,000 employees in 46 states. At Oct. 1, 2010, SunBridge centers had 23,189 licensed beds located in 25 states, of which 22,407 were available for occupancy. Sun also provides rehabilitation therapy services to affiliated and non-affiliated centers through its SunDance subsidiary, medical staffing services through its CareerStaff Unlimited subsidiary and hospice services through its SolAmor subsidiary.

Tags: sbra, stock spin-off, sunh, sunhealthcare

Stock Spin-offs are a good place to make money, right?  They have been reported to be for some time, but does that continue to be true? . . .  in different sectors?  . . . when the spin-offs are for different reasons?

An article on Investopedia has looked at the fate of spin-offs in the energy industry that have occurred in the last year with an eye to just such questions.

They look at Cenovus (CVE), EnCana (ECA), QEP Resources (QEP), and Questar, (STR).

It’s short and doesn’t provide any definitive answers, but it may provide some food for thought.

Tags: Cenova, CVE, ECA, Encana, QEP, QEP Resources, Questar, spin-off stock, stock spin-off, STR

As a stock spin-off investor, if you aren’t already a subscriber you might want to check the Spin-off Report Card Series from the Motley Fool.

The most recent post  is on Vishay Precision Group, VPG.  They gave it an overall B+, but more importantly they spelled out their reasons commenting on four areas–

1. Do institutions want to own the spin-off?
2. Do insiders want to own the spin-off?
3. Does management have incentives to make the spin-off succeed?
4. Does the spin-off transaction expose a “special opportunity”?

I don’t know how often they will be coming out with posts on spin-off stocks, but this is definitely a resource to be included in your tools.

Tags: spin-off stock, stock spin-off, Vishay Intertechnology, vishay precision group, VPG, VSH