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

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

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

Spinoff stocks and the stock of the parent company that separates off a portion of its business have both generally done well after the spinoff, but the spin-off stocks as a group have done better.

Is that always true?  No.

Why?  Well, why is almost always easier to tell in retrospect, but the reason for the stock spin-off should give some clues.   For example, look at what LRAD President Tom Brown said about why they are spinning off their HSS division as Parametric Sound in an LRAD company press release.

“When Company founder and the inventor of  HSS, Elwood G. Norris, approached the board of directors earlier this year regarding spinning off HSS through a tax free distribution, we viewed it as the best opportunity to create shareholder value for a business that has historically contributed significant losses to the Company’s operating results and contributed less than 5% to our total business revenues through the fiscal nine months ended June 30, 2010,” remarked Tom Brown, president and CEO of LRAD Corporation.

Sounds like they’re figuring that they’ve got a good thing going with the sound systems, but that’s being held back with the focused listening systems.

Will Parametric Sound find a way to start making money and eventually outperform the parent?  Who knows?  I certainly don’t.  That will be in the public record soon enough.

Maybe the best bet for those who do find themselves in possession of Parametric Sound shares will be that a larger company has a need for their technology and buys the whole company.

For right now though, if this is a situation that interests you, the parent is probably the more likely bet.

Tags: HSS, LRAD, Parametric Sound, spin off, spin-off stock, stock spin-off

LRAD Corporation, symbol: LRAD, has announced that September 10, 2010, is the record date of its tax-free stock spinoff of its HSS business.

Just in case you have not heard of either (I hadn’t),  here’s how the company describes itself on its website :

“LRAD Corporation’s Long Range Acoustic Device® (LRAD®) directional sound systems are being used around the world in diverse applications including, fixed and mobile military deployments, maritime security, critical infrastructure and perimeter security, commercial security, border and port security, law enforcement and emergency responder communications, and wildlife preservation and control. ”

You can read more about it on the company website, but appears that they make very loud, highly focused bullhorns and a product called HSS which is a very sensitive, highly focused microphone.

Does this stock spinoff make sense?   . . . for the company?   . . .  for potential investors in the parent or the spin-off stock?  I can’t tell.   The company is pretty much “under the radar” when it comes to analyst opinions.

It does seem a bit odd for a company whose stock sells for around $1 a share to be wanting to split itself up.  On the other hand, if having the two product lines is really counter to long term growth of either component, then I guess it might.

At least when you’re trading in a stock this cheap, you can just make the entry price your stop and then sit back and watch.

Tags: HSS, LRAD, spin-off stock, stock spin-off

Tyco International, (TYC), announced in late April of this year that it would do a stock spin-off of its electrical & metal products business in 2011,  and we haven’t heard much if anything about it since.  Apparently, the number of pieces that have to come into place for a spin-off stock to actually come into existence is mind boggling.  It takes a lot of work, a lot of time, and there really isn’t anything for the company to say until they get it all in order to the satisfaction of the SEC.

This points up one of the difficult parts of stock spin-off investing, at least for those of us with ADD, and that is the grand pace at which these things proceed.  The themes of greed and fear have been beaten into the ground by anyone with anything to say about investing, but impatience and loss of focus really ought to be right in there with the big two.

You have to remember what you are watching and you have not resist the urge to try to “push the river”.  Each kind of trading has its own pace and flowing with that makes the different between success and failure in any particular style. When it comes to spin-off investing it sounds simple, and, I guess it is for those of you with the right temperament.  For the rest of us, watch lists and calendar alarms and taking a deep breath and waiting for the trade to come to us are vital.

So, keep your eye on Tyco’s upcoming spin-off.  We won’t be able to assess its potential until they give us some data on what they are going to do.  If that looks good, then we can wait to get confirmation from price and volume.

Tyco Describes Itself As: ” a diversified, global company that provides vital products and services to customers in more than 60 countries. With more than 100,000 employees worldwide, Tyco is a leading provider of security products and services, fire protection and detection products and services, valves and controls, and other industrial products.”

Tags: impatience, spin-off stock, stock spin-off, TYC, tyco International

Even before spin-off stock of Babcock & Wilcox starts trading on the New Stock Exchange under its new ticker symbol, BWC,  the company is showing signs of what’s ahead with its recently announced alliance with Bechtel for small modular nuclear power plants,  (SMR=small modular reactor).

Babcock & Wilcox has been successfully putting nuclear reactors in demanding situations for years.  Their small modular reactors have kept the nuclear submarine and surface ships of the US Navy going  efficiently, safely, and largely unnoticed for decades.  Linking up with Bechtel to take this experience and skill out of the warships and out into the world certainly seems like a good idea on the surface of it.

For more details from someone who focuses on nuclear power generation issues, you might find this linked blog post on the Babcock & Wilcox/Bechtel Power venture.

As far as stock spin-off investing goes, we can only hope that most people don’t even know who Babcock & Wilcox are and what they do and only relate Bechtel to involvement in Boston’s “Big Dig”.  If that’s the case, with any luck they will bail out of BWC early, giving us a chance to get in at a good price.

We need every kilowatt we can scrape up in the future and when it comes to nuclear power generation, these two know what they are doing.

Tags: Babcock & Wilcox, Bechtel Power, nuclear power, spin-off stock, stock spin-off

To no one’s surprise, Frontier Communications, FTR, is down sharply on heavy volume after its stock spin-off from Verizon, VZ.    Actually, there must be someone who is surprised, but apparently they are part of a small group of Verizon shareholders who were backpacking in the wilderness or who get terribly bored thinking about money or something.

On my weekly charts I see that over the last 20 weeks FTR has had an average of  about 29 million shares change hands each week.  Last week the volume was 110,589 shares with the price opening the week at 7.56 and finishing Friday at 7.35.  Today by lunchtime on the East Coast today we’ve seen 27,332,000 shares change hands and the price is down nearly 5% at 7.01.

It  doesn’t take Jesse Livermore to detect the current trend in the spin-off stock here, but so what?  The question is always whether there is a workable opportunity in this action and if there is, how can we get on the profitable side of it?

Sooner or later this kind of thing usually gets over done, but in my limited experience, prices have an incredible ability to stay “too high” or “too low” for too long,  getting me too nervous and/or too financially stressed to hold on until the price comes back to “reality” (which is an odd choice of words since reality is clearly the price shown right on everyone’s screen at every moment.)

So, what to do?  For myself, (since as I mentioned in a previous post, my ADD won the day another time and I was amazed to find myself the proud owner of 12 shares of FTR,)  I am going to hold onto the shares received in the stock spin-off for their entertainment value if nothing else.

When and if I buy more FTR in the future will be determined by the trading plan that I put together some time ago far from the heat and confusion of the specific companies and businesses and business cycles.  Having tried to catch one falling knife too many, I find that having a plan and sticking to it is the only way I can stay sane and effective.

Tags: Frontier Communications, FTR, stock spin-off, stock spin-off investing, Verizon, VZ

Verizon’s (VZ) upcoming stock spin-off of Frontier, its landlines unit, is getting typical responses to the spin-off stock (dump it!) which can provide an opportunity for followers of spin-offs, but does it always?  Surely there are times when the contrarian idea that if everyone is doing, there must be money to be made by playing it in the other direction, is just plain wrong.

Still, even if they are exactly right given that their actions are predictable, is there an advantage to be gained from the odds that their correct actions are likely to be overdone?

Just asking.

Sounds like there may be a short term opportunity for the nimble.  What do you think?  How would you trade it?

7/2/2010  Oops!  Belated disclosure:  I got an electronic confirmation from an IRA that I rarely look at informing me that I have received shares in Frontier Communications as a result of the spin-off from Verizon which I had forgotten I owned.   For the record, I intend to keep the Frontier and may add to the position after other people who got notified that they now own a landline company that they never wanted sell it.

Tags: Frontier, spin-off stock, stock spin-off, Verizon, VZ