The stock spin-off of the IT staffing and consulting company Mastech, symbol MHH, from i-Gate, symbol IGTE, occurred about ten months ago and so far its chart pattern seems to be true to form for a spin-off. 

The first half of the expected (hoped for?) spin-off stock cycle, the initial drop in price for reasons unrelated to the inherent value of the company, appears to have occurred. 

To this point we have just been observors.  Now we need to have a plan that determines if and under what conditions we will start buying the stock.  We do have a wealth of information in the SEC filings and from looking at the stock’s chart. 

You will have to decide what facts are most relevant to you, but some things that caught my eye were

•  the ownership of 57% of MHH shares by the majority owners of IGTE
•  the top two clients account for over 25% of the total revenue
•  the business is described by management as highly correlated with general economic conditions
•  immigration laws have a great effect on abililty to get staff
•  the stock is traded very thinly
•  most recent earnings will be reported August 6, 2009
•  there are no options available presently

This is an interesting situation to me because of Mastech stock’s low volume that makes it just about impossible for most professionals to buy and of little or no interest by analysts to follow.  If and when it “jumps” onto the screens of the professionals, it could be very rewarding for those who go onboard early.

Tags: iGate, IGTE, Mastech, MHH, spin-off stock, stock spin-off

Tags: Claymore/Beacon ETF, CSD, spin-off stocks, stock spin-off

As Entergy, ETR, moves closer to it stock spin-off of 6 nuclear power plants to form the new corporation to be called Enexus, it appears that whether it seems like a good deal may depend on where you are standing.  The Vermont Times Argus has run an article about the  that discusses what Vermont regulators see as potential problems for them in the deal.

The question they and New York regulators are asking is whether Enexus will have enough capital to keep the promises that were made to them initially on what will happen to the plants when they are no longer operating.   That is a legitimate concern, but from the perspective of potential investors in either or both of the companies involved it is more an ethical than a financial issue, (unless of course you live in Vermont and fear your tax dollars may be involved in making the deal work out.)

From our perspective the questions are

• will this spin-off make the parent Entergy stronger and better able to grow earnings, and
• will the spin-off stock be positioned to do the same?

They are dividing the company with some logic — regulated electricity generation vs. open market generation –  but I don’t know enough about the industry to know whether this is such a great difference that it sets either portion free to achieve more than they would together.  If you have a few minutes for some research, you’ll find everything that is publicly known in the SEC Information Statement about the spin-off. 

It would seem that having a regulated portion of the company grinding out steady, reliable cash flow would provide a foundation for the more volatile non-regulated business to weather the ups and downs of that portion of the energy market, but maybe not if any investors in your company know that you are on the hook for a big, uncertain clean-up down the road.  I do not know.

Fortunately, we don’t have to figure that out.  We just have to remember that spin-offs often (not always) provide a reason for a market beating move in stocks and then watch for a move that confirms it in the particular case. 

And, of course, we have to fight off the urge to be smart and/or prove we can predict the future and  just focus on making money.  The tendency of spin-off stocks and parent company stocks to outperform the market and their sectors is enough to put them on our watchlists.