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

“When Do Analysts Add Value? Evidence From Corporate Spinoffs” , an academic paper, was the result of viewing 1739 analyst reports on corporate stock spinoffs.

My first response was to think just how thankful I am that the authors of the paper read all those analyst reports and not me!  They did it and I don’t have to.  They deserve another step toward tenure.  Seriously.  Whew!

Their observation that even though analysts could add a lot of information about the prospects of the spun off company, they usually don’t was not much of a surprise.  Even with all of the SEC documents that are filed on pro forma financials and the information in previous filings on the part the new entity played in the whole company in the past, it is common for it to seem like it is a pretty empty corner of analysis and prediction.

Actually, I sort of hope they don’t spur the analysts to get into this area more, since that lack of interest and information has always seemed to be a source of the mis-pricing that can create value in a stock spin-off.  There are precious few of those now that computers and the internet are flooding us with more information than most of us can deal with anyway.

In any event, the online synopsis of the paper reads easily for an academic piece and is worth a look.

Tags: analysts reports on spin-offs, spin-off stock, stock spin-off, stock spin-off investing

I recently came across an excellent article on how to invest by Rohit Chauhan. While it is quite basic on many points, the way he puts it all together was very helpful to me.

I especially appreciated his conclusion -

“So… what’s the catch ? The catch is — us! A lot of investors like to get all excited and thrilled, when investing in the market. They want to chase the hottest stock, so that they can boast about it to their friends. At the same time, they ignore the gems lying right in front on them.  Investing is simple, but not easy. ”

I love it!  . . . . . “What’s the catch?  The catch is –us!”   Reminds me of that old comic strip quote from Pogo – “We have met the enemy and they are us.”

I agree.  The catch is us.  So it follows that that is where our attention should be.

(Oh, and by the way, he is writing about the Indian market, so you don’t have to get distracted by his examples unless you have access to that market.  At least for me, that helped me not be looking for specific stocks or other distractions from his message.)

Tags: how to invest, investing article

In a recent article on CSD, the stock spin-off exchange traded fund, Claymore/Clear Spin-Off, Michael Johnston has given a very concise and complete look at the ETF.

CSD,  can serve the value investor seeking better than average returns in serveral ways.

• Of course, you can simply buy the fund.
• You can also use its portfolio as one source for building your watch list.
• And, the content of its quarterly and annual reports is a good source of educational information on spin-off stocks.

Depending on when you got into CSD it has been a very rough or a very rewarding ride for investors so far as shown by the chart below.

Splits:none

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

In a recent article about Hospira, HSP, a 2004 spin-off stock,  the Lake County News-Sun illustrates one of the most direct pathways for a successful trade in a spin-off.

“At least two-thirds of my clients, most of them Abbott retirees, divested their Hospira holdings because Hospira was a new company and they were not certain about it,” said Roch Tranel, president of Tranel Financial Group, a financial planning firm based in Libertyville which has many Abbott retirees as clients.  His clients wanted to stick with Abbott, ABT, the parent company.

They didn’t want the new company’s stock, so they sold it.  And, while they were doing that, with all of its risks, uncertainties, high hopes, and positive potential,  the  new company started its life from our perspective as an excellent candidate for a long position.

20/20 hindsight shows us again that this turned out well.

Of course we don’t have 20/20 foresight, so entering one of these trades when lots of other people are heading for the exits can be a pretty stressful thing to do.

The right side of any chart is simply too empty to evoke feelings of calm.  Managing whatever your own particular level and style of that kind of discomfort is, is as important as finding the right stock to buy and figuring out a high percentage time to get in.   If you were born with a naturally cool head and keen eye for threading your way through uncertainty, count yourself  very lucky.  Most of need some form of trading stress management routine to keep us calm and clear-eyed enough to “pull the trigger” when the time is right.

Tags: Hospira, HSP, spin-off stock, stock spin-off, Value Investing

Dr. Pepper Snapple, DPS,  emerged in its present form as a stock spin-off in May of 2008.  

It has been noted that spin-off stocks often make their best moves in their second year.  This could be taken to suggest that during its first year a spin-off stock is likely to be a good value.

Looking at its chart with 20/20 hindsight, Dr. Pepper Snapple is a spin-off stock that could have been viewed as undervalued to varying degrees during most of its first year.

I believe it is Preston James, a guy who does workshops on trading stocks that have pre-announced higher earnings ahead, who recounts a story in which a man said to him “all I need to know is when to get in and when to get out.”  The story apparently gets a pretty consistent laugh, and yet . . . .  this is it, isn’t it?  When do we get in?  When do we get out?  DPS spent all of its first year lower in price than it is today near the end of its second year.  When “should” you have gotten in?  And when should you get out?

Given that the one thing we know about when this train leaves the station and when it gets to its destination is that it tends to happen when the largest number of riders aren’t prepared, what do we do?  Not really a cute or funny question when it’s your money.

In a general sense, this is a personal, psychological challenge related to how you deal with uncertainty and that is another whole topic.  In its most specific sense, it a challenge of looking for clues, tendencies, correlations, averages; your standard fuzzy types of stuff.

The “second year” observation may have something in it.  Any observations?   thoughts?   ideas?

From Yahoo Finance:  ”Dr Pepper Snapple Group, Inc. operates as a brand owner, manufacturer, and distributor of non-alcoholic beverages in the United States, Canada, Mexico, and the Caribbean. It offers flavored carbonated soft drinks (CSDs) and non-carbonated beverages (NCBs), including ready-to-drink teas, juices, juice drinks, and mixers.”

Tags: DPS, fear, greed, investing, psychology, psykchological, spin-off stock, Value Investing

The concept of seeking value is familiar to anyone who shops for groceries, but when it comes to value investing, carrying those learnings over can be deadly.

The grocery store makes it easy because it’s all right there.  From toilet paper to apples if you want to take the time you can calculate, prod, read, and decide which product has the best value for you.  And anyway, if that new brand that seemed to be such a deal isn’t, you’ll be going back to restock soon anyway.

Now turning to stocks, we want to buy low and sell high.  We want  to find stocks that are likely to go higher than they are now so that we can sell them and make money.   One way to do that is to find a stock that is a bargain, one that has good value.

The thing is, it can be very difficult to tell the difference between true value,  a stock whose price is low by the usual backward looking measures, but is actually priced just right going forward,( in other words one that is down there for good reason), and one that is irrationally, mistakenly, or unfairly undervalued.

Of course it is the latter that we value investors are looking for and spin-off stocks are a great place for find real value;  stocks whose price is depressed for reasons unrelated to the company’s prospects.  In Joel Greenblatt’s language, this is a pond into which we want  to throw our bait in hopes of hooking a big one.

Tags: spin-off stock, stock spin-off, value, Value Investing