Stock Spin-Off Investing
A stock spin-off, also known as a spin-out occurs when a corporation decides that a particular division or business unit would be better suited as its own entity. This is often decided for the benefit of the parent company, the division or business unit in question, or both. When this is agreed upon, a stock spin-off occurs.
Investors can take advantage of this opportunity when this new separate corporation that was just spun off begins trading publicly as its own entity. Stock spin-offs tend to outperform the overall market for a variety of reasons. By using basic value investing principles and common sense, combined with a knowledge of stock spin-offs and awareness of actual spin-offs that are taking place in any given month, you can find a profitable niche in the trading and investing arena.
If practiced, stock spin-off investing can give you an edge and provide you with a potential area of expertise that you can profit from. The best news is that these spin-offs are happening constantly. We track new spin-off announcements every month for stocks and companies across every industry and every financial market.
As soon as one stock spin-off trade is being wrapped up, many new opportunities will arise. This allows you to trade with the advantage of knowing that new opportunities are always around the corner, and that you don’t need to be desperate or settle for anything but a perfect opportunity. Fortunately, stock spin-offs often do provide great opportunities if you know what to look for.
On average, stock spin-offs outperform the overall market averages in their first year of public trading. In their second year, they average even better returns than their first year.
There tends to be some volatility when a company is newly spun-off. Shareholders of the original corporation are sometimes awarded shares of the spin-off. If a lumber company is spinning off a paper division, some shareholders might not wish to own shares of a paper company. They will often sell these shares whether or not they think the company will succeed. As mentioned above though, this spin-off will perform better on average than the overall market. It’s simply a matter of allowing the volatility to pass and the price to settle after the initial spin-off.