Be Ready When This Tech Spin-Off Hits Wall Street

Michael A. Robinson

Most investors don't think of Rayonier Inc. (NYSE: RYN) as a high-tech firm.

This 85-year-old forest products company operates as a Real Estate Investment Trust (REIT) after being first acquired, then later spun off, by ITT Corp. (NYSE: ITT).

It owns some 2.7 million acres of timberland and is one of the largest landowners in the U.S. and New Zealand.

That sounds like a pretty low-tech operation – turning forest lands into lumber, pulp, and paper products.

And there's our opportunity…

Hidden below the surface is a tech-oriented performance fiber division that can offer investors superior returns and is soon to be spun off.

While that deal's developing, I'll show you first why it's going to be a huge winner.

And then how to profit now from some of the best tech spin-offs out there…

Beat the S&P 500… By Nearly Half

Rayonier's yet-to-be named spin-off will make products for the pharmaceutical industry as well as specialty coatings used throughout the tech and industrial sectors.

More to the point, the fiber unit transforms simple wood chips into high-value cellulose fibers used in the manufacture of flat panel televisions, computer screens, and smartphones.

Rayonier has found a way to unlock the division's hidden value when it made the decision to spin off the fiber division as its own independent company.

The structure of this spin-off shows just why these transactions can be so profitable for investors.

Rayonier's existing shareholders will get stock in the new independent firm at no cost to them. In other words, buy one stock and invest in another one for free – all without a bill from the tax collectors.

And history shows that's just the beginning of the profit stream…

Lehman Bros. studied the subject extensively and found that investors in these kinds of deal gain windfall profits. The former Wall Street giant studied 85 spin-offs between 2000 and 2005 and found that they beat the S&P 500 by as much as 45% in their first two years as independent companies.

Of course, some may think that's a biased study designed to attract investors to new issues the firm is underwriting. But academics have come to similar conclusions.

Consider that two professors at Penn State University examined 30 years of market data covering 174 spin-offs. Their study revealed that in the first three years of operations, these new companies showed price appreciations of 76%, beating the S&P 500 by 31%.

Whether the teams from Lehman Bros. or Penn State have the best profit data is beside the point. Both studies prove conclusively that spin-offs can absolutely crush the overall market's returns.

Spin-Offs: The Ultimate "Two for One" Deal

Now then, as much as we like the potential in the Raytheon spin-off, there's a play that gives investors the opportunity to invest in more than 30 of the best spin-offs.

The Guggenheim Spin-Off ETF (NYSE Arca: CSD) specializes in just these kinds of deals. Strictly speaking, it's not only focused on technology firms.

Instead, CSD invests in technology as well as a broad array of sectors such as energy, restaurants, and entertainment.

But it includes three spin-off firms in particular that will help this ETF well outperform the overall market's returns.

Michael A. Robinson

About the Author

Browse Michael's articles | View Michael's research services

Michael A. Robinson is a 35-year Silicon Valley veteran and one of the top technology financial analysts working today. He regularly delivers winning trade recommendations to the Members of his monthly tech investing newsletter, Nova-X Report, and small-cap tech service, Radical Technology Profits. In the past two years alone, his subscribers have seen over 100 double- and triple-digit gains from his recommendations.

As a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs and high-profile industry insiders. In fact, he was one of five people involved in early meetings for the $160 billion "cloud" computing phenomenon. And he was there as Lee Iacocca and Roger Smith, the CEOs of Chrysler and GM, led the robotics revolution that saved the U.S. automotive industry.

In addition to being a regular guest and panelist on CNBC and Fox Business Network, Michael is also a Pulitzer Prize-nominated writer and reporter. His first book, "Overdrawn: The Bailout of American Savings" warned people about the coming financial collapse - years before "bailout" became a household word.

You can follow Michael's tech insight and product updates for free with his Strategic Tech Investor newsletter.

… Read full bio