Spinoff stocks have been performing exceptionally well in 2024, outshining the broader market by a significant margin. The General Electric aviation and energy split, which resulted in the creation of GE Vernova, has seen shares surge by more than 23% since its inception. This trend is not limited to a few isolated cases – 15 companies have already completed spinoffs this year, with 19 more scheduled to follow suit. According to Morgan Stanley, spinoffs present investors with a unique opportunity to capitalize on unlocked and potentially underappreciated value. The Wall Street bank’s research has shown that spinoffs tend to outperform the broader market by more than 2% two years after the split, while parent companies often underperform by 8.1%.
While spinoff stocks have shown significant upside potential, not all spinoffs automatically translate into success for investors. Spinoffs of companies operating in different sectors tend to outperform, as the new stock is likely undervalued. On the other hand, spinoffs within the same industry may be a red flag, signaling that the parent company is trying to unload underperforming assets. A cheap valuation does not always indicate a good deal, as spinoffs with higher valuations have been found to trend better over time. Investors need to consider these factors when evaluating spinoff opportunities to make informed decisions.
Several spinoff stocks have stood out as winners in the current market environment. GE Vernova, Esab, and Sylvamo are prime examples of spinoff companies that have delivered impressive returns to investors. GE Vernova, a favorite among analysts at Roth MKM, has seen its shares rally almost 28% year to date. Similarly, Esab, a Swedish-American company specializing in welding and cutting equipment, completed its split from Enovis in April 2022, with shares surging nearly 28% since then. Sylvamo, a paper producer with operations in Latin America, has also gained more than 34% in 2024 following its separation from International Paper.
Investors can look forward to several upcoming spinoff opportunities in the second half of 2024. Health care companies like Baxter International and Edwards Lifesciences are scheduled to spin off businesses, presenting investors with new avenues for potential growth. Baxter International plans to spin off its kidney care company Vantive, while Edwards Lifesciences is set to split off its critical care unit. Additionally, consumer goods giant Unilever is gearing up to spin off its ice cream business in the fourth quarter. These upcoming spinoffs offer investors diverse options to consider and may present attractive investment opportunities.
Spinoff stocks continue to offer unique opportunities for investors looking to capitalize on unlocked value in the market. While not all spinoffs guarantee success, diligent research and careful consideration of key factors can help investors identify promising opportunities. Companies like GE Vernova, Esab, and Sylvamo have demonstrated the potential for significant growth post-spinoff, underscoring the value that can be unlocked through strategic corporate restructuring. As more companies prepare to spin off businesses in the coming months, investors have a chance to explore new investment possibilities and potentially reap the rewards of these spinoff opportunities.
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