Encana spin-off Cenovus, CVE, closed today with its price at the lowest level that it has been since the stock spin-off, 41 days ago by my count.  Where is the “drop-right-after-the-spin-off-and-then head-higher” pattern that we’re looking for when we need it?

The often quoted studies on spin-off investing used stock price two years after the spin-off for their calculations and if my memory serves me correctly they found that most of it came in the second year.  Which brings up a significant psychological factor in making any trading plan work, which is how one sticks to the plan without getting thrown off by activity between getting in and when the plan calls for you to get out.

Where Cenovus will go from here is anyone’s guess.  Spin-off stocks tend to outperform.  Which is a way of saying that on the whole, spin-off stocks go up, but any particular one may or may not.

One thing is for sure and that is that when you don’t stick to your trading plan, whatever it is, you are at risk of getting caught on the wrong side of  the trade coming and going.

What does your trading plan call for here?  Do you get out on the new low?  If so, is it the end of the trade or will you re-enter?  Under what circumstances?  Or, have you decided that your exit will be two years after the spin-off?  Perhaps, you view the spin-off as having a positive bias and you will trade it long.

Whatever you decided when you got in, now is not the time to decide to throw the plan out the window and wing it.

Tags: Cenovus, CVE, spin-off stock, stock spin-off

Now we know that Encana intends to call its oil sands unit spin-off Cenovus.  We know what to call it, (though I haven’t heard what the ticker symbol will be.)  That just leaves us to try to figure out whether this is a good deal for us or not.

Generally, getting the oil out of the sand and refining it into a usable product depends on high oil prices.  It’s an expensive process.  The oil is there and they know how to get it, but they need someone to be willing to pay enough for it to make the whole thing profitable.

Right now the price of oil is trending in the wrong direction for this source to be profitable.  Will the price of oil reverse itself enough to make this a good investment?  Eventually to be sure, but when?

Perhaps from the point of view of one seeking value in a spin-off situation, the closer the price of oil edges toward oil sands extraction costs, the better a long term value this new company Cenovus will turn out to be.

Tags: Cenovus, ECA, Encana, spin off