Knowing when you are going buy a spin-off stock is at the heart of a successful spin-off based trading/investing plan.

The whole idea here is that the nature of the spin-off is that the stock price of the new entity tends to go down immediately after the spin-off for reasons largely unrelated to the inherent value of the company and then, at some point, starts moving up, often outpacing the market and the sector.  If you time your entry so as to get into the trade after the stock starts its upward trend, you stand to make a nice gain.

Too early or too late?  If you are lucky you just end up leaving money on the table.  Get it really wrong and go in without a plan as to how you will decide this one is not working as planned and getting out, and you can suffer a significant loss.

The challenge here is that we come into a spin-off situation with a bias.  We know what we expect stock’s price to do (what we want it to do which is make money for us)  but we too easily forget that even if it follows our expected pattern, it will do it in its own time and manner.  When we think we know what is going to happen next when in fact we don’t, we not only put ourselves in danger, but we miss opportunities.

Take a look at this weekly chart of HSNI, the Home Shopping Network.   “All” you had to do was wait until the second week in December of 2008 and then enter long and hang on,  or more conservatively enter in the first week of May 2009.   In either case, you’d have had to hold through the consolidation that began in January 2009 and went for eight or sixteen weeks depending on how you count.  Not an easy thing to do except perhaps in hindsight.

If you’d like to follow one that is going on right now,  look at a weekly chart of Myriad Pharmaceuticals  MYRX as of mid August2009  and the same  chart at year’s end.  Note carefully how totally unhelpful the right side of  the chart beyond the last bar was on the first chart .  (I prefer chart settings that actually leave the chart area blank to the right in cases like this just to underscore how much it cannot tell us about the time frame we care the most about.)  In any case, it is into this void that we have to leap!   By the time the MYRX chart showed us what the chart of HSNI did it was too late.

It is dealing with this kind of uncertainty, even knowing that in the long run the odds are in your favor, that I think separates the successful from the rest of us in this venture.

Tags: HSNI, MYRX, spin-off stock, stock spin-off

The stock spinoff of Myriad Pharmaceutical (whose symbol will be MYRX when the shares are distributed)  from Myriad Genetics, MYGN, is official though it doesn’t really happen until June 30, 2009.

The Salt Lake Tribune explained it . . .  mostly.  Apparently the Securities and Exchange Commission approved the spinoff and the registration is in place,  but shareholders will not receive shares of the new company until June 30th.  In the meantime, very thin trading has been reported for the “when issued” version of the shares that are trading under the ticker symbol MYRXV with them closing their first day at $7.    The “V” denotes when issued.  After the June 30 distribution the symbol will simply be MYRX.

A new company in the sense that it will be completely separate from the parent, Myriad Genetics, for the first time,  Myriad Pharmaceuticals will have the advantage of continuation of leadership. 

This is always an important issue in assessing a spinoff.  To put it bluntly, “Do these guys know what they are getting into?  Do they know what they are doing?” 

In the case of Myriad Pharmaceuticals, the decision of  Adrian Hobdon, PhD,** to head the newly independent company seems to be a very positive sign.    Dr. Hobdon has been with Myriad Pharmaceuticals, Inc. , and hence Myriad Genetics, since October 1998.   Before that he was at Glaxo Wellcome where, over a period of 17 years, he ran a number of departments within the drug discovery area.  Dr. Hobden obtained a BA in 1975 from Cambridge University and a Ph.D. from Leicester University in 1978. 

While no one can forsee the future, that this experienced, successful man has decided to stake his personal future on this new stand-alone entity  is a very positive sign.  He must believe that the chances of the new drugs that are in the pipeline turning out to be successful ones are very good.

That aside however,  since the new pharmaceutical company doesn’t have any FDA approved pharmaceuticals to sell right now, it will be interesting to see what Myriad Genetics shareholders do with the stock they receive in the spinoff.  It could be a classic spinoff price situation setting up.

With all the talk lately of who should spinoff what to get toxic business segments off of their balance sheets, it is encouraging to see a plan come along that may actually take advantage of the strengths potentially found in a spinoff.

**Note that in the original version of this post Dr. Hobdon’s biography was incorrect and is corrected here.

Tags: MYGN, Myriad Genetics, Myriad Pharmaceuticals, MYRX, MYRXV, spin-off stock, spin-off stocks, stock spin-off investing