Spinoff Stock Research

Sample Issue
Monthly report for value investors on new spinoffs and other special situations.

Contents

About the author

William Mitchell was a managing partner at hedge fund Strategy Capital before launching Spinoff & Reorg Profiles in 2004. His articles have appeared in the New York Times and the L.A. Business Journal, and he has been a panel speaker at the Caltech Enterprise Forum. He holds an MBA from the Stanford Graduate School of Business, a BS in engineering and applied science from Caltech, a BA in physics from Reed College, and has passed the NASD 65.

Fundamental value determines content

From summer 2007 to late 2008, spinoffs significantly underperformed the market for the first time in decades. This hammered inflexible approaches such as spinoff ETFs — but not us. Why? Because fundamental analysis led us away from most of the junk.

In particular, we often preferred the parent companies, which were dumping ballast by spinning off their problems. Tactical flexibility (buy what makes sense right now) and philosophical inflexiblity (only buy good, cheap companies) were our allies.

Thoughtful heresy

In our November 2008 issue, the pick of the month was luxury goods maker Coach (COH) at 16.68. At the time, retail was in free fall, and no institutional analyst had assigned a buy to COH.

As this is written (May 24, 2009), COH is up 46% in six months.

Were we lucky? Was COH a risky dice roll? No, Coach was a growing, strongly branded, highly profitable, debt free, globally diversified firm with a net earnings yield over 13%. Insiders had just purchased almost a million dollars of COH, contrary to previous trends. The company planned to repurchase another 20% of shares. Current ratio was 3, so insolvency risk was relatively low.

As we wrote at the time, we particularly liked COH’s likely resistance to inflation and/or dollar collapse. Again, almost no one was talking about future inflation in autumn 2008, except us.

We didn’t expect COH to recover so quickly, but its eventual success looked likely. Fundamentals all pointed the right way, and insolvency risk, even in a full-blown depression, was low. Safe, cheap, no hurry: this is how we think about investing.

Gain an information edge over Compustat

Compustat and Reuters often report incorrect fundamental data on new spinoffs for weeks after they list. During that time, you cannot find bargain spinoffs by mechanical screening — no matter how cheap they may be. But you can find them here.

Value proposition to investment partnerships

Most of our subscribers are hedge funds, private foundations and other investment managers. All have in-house analysts. Why do they read Spinoff & Reorg Profiles? Because, very simply, we yield as many good ideas as a captive analyst, at over 100 times lower cost.

Global and obscure, but US-traded

Did you follow Compagnie Financiere Richemont in 2008, or Barloworld in 2007, or Husqvarna in 2006? All three are foreign midcap spinoffs or parents thereof, obscure in the US but listed on the Pink Sheets, and all enjoyed relatively obvious windows of low price within a few months after listing.

Spinoff & Reorg covered all three, and many more. In addition to exhaustive US coverage, we offer ideas far afield of the usual suspects.

Try it with no further commitment

We expect to earn our keep every single month. We’re sufficiently sure of this, in fact, that we don’t require an annual subscription. You can go month-to-month with a credit card, and cancel anytime. (Exception: due to administrative overhead, soft dollar subscriptions are annual only.)

Testimonial

“I’ve signed up for a lot of research letters like this, but don’t renew many.

Spinoff & Reorg is one of the few services that is worth it.

I love this publication.”

- Cory Janssen, Co-founder – Investopedia (property of Forbes Media)
October 26, 2007

Track record

Below are the results from the monthly recommendations in all issues of Spinoff & Reorg since inception in June 2005 (last calculated April 2009).

Mean 6-month return, all since Jun 05 U.S. Spinoffs Spinoff & Reorg
S&P-relative -0.4% 4.9% (10% CAGR)
Standard deviation 36% 28%

This spreadsheet shows how the above results were calculated.

Academic evidence for high spinoff returns

Sample issues of Spinoff & Reorg

For analysts examining new strategies, we also offer a historical spinoff list for backtests.