In the world of investing, spinoff stocks have been gaining attention as some of the most consistent winners. Throughout the year 2024, we have seen 15 companies complete spinoffs, with notable examples like the General Electric aviation and energy split. One particular standout is GE Vernova, whose shares have surged by more than 23% since their debut in late March. This performance is especially impressive considering the S & P 500’s modest 9% increase for the year, coupled with a 1% decline in the second quarter. As we look ahead, there are opportunities on the horizon, with 19 more companies slated to undergo spinoffs this year, according to data from Morgan Stanley.
Capitalizing on Value
Spin-offs offer investors a unique chance to tap into unlocked and potentially undervalued assets. Todd Castagno, a strategist at Morgan Stanley, highlights this point in a recent report, noting that historically, spinoffs have outperformed the broader market. In fact, research from the Wall Street bank indicates that two years after a split, spinoffs have beaten the market by more than 2%, while parent companies have underperformed by 8.1%. This underscores the importance of identifying spinoff opportunities that present hidden value.
While not all spinoffs guarantee success, there are notable examples of companies that have thrived post-split. Roth MKM, a prominent research firm, has pointed out several spinoff stocks that have outperformed the market in recent times. GE Vernova, a favorite pick at Roth MKM, has received a strong “buy” recommendation, with its shares showing a substantial rally. Esab, an industrial company specializing in welding and cutting equipment, is another beneficiary of a successful spinoff. With shares up nearly 28% year-to-date, Roth MKM suggests buying on pullbacks for potential gains.
Another compelling stock to watch is Sylvamo, a paper producer with operations in Latin America. Since its separation from International Paper in 2021, Sylvamo has soared more than 34% in 2024. Veralto, a recent spinoff from Danaher, also presents an opportunity for investors, with shares rallying nearly 18% year-to-date. The momentum seen in these spinoff stocks underscores the potential for unlocking value in newly formed companies.
Looking ahead, the second half of 2024 offers a fresh wave of spinoff possibilities, particularly in the healthcare sector. Companies like Baxter International and Edwards Lifesciences are set to spin off divisions, presenting unique investment prospects. While Baxter has faced challenges this year, including a 7% decline in its share price, the spinoff of its kidney care business could unlock hidden value. Similarly, Edwards Lifesciences’ critical care unit spinoff shows promise despite recent stock declines. Additionally, consumer goods giant Unilever plans to separate its ice cream business later this year, providing yet another avenue for investors to explore. By staying informed about upcoming spinoff opportunities, investors can position themselves to capitalize on potential value creation in the market.
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