I love corporate spin-offs – and you should, too.
With spin-offs, companies unlock hidden values in their operations and pass them on to shareholders – offering low risks and high probabilities of market-beating profits.
And the past month or so has produced a bonanza.
And most recently, security software maker Symantec Corp. (Nasdaq: SYMC) joined in and said it's splitting in two.
Overall, spin-offs are estimated to be worth $1.6 trillion so far this year.
Here's the hitch….
Breakin' Up Is Good for You
As promising as all that money sounds, most of these deals won't take effect until the second half of next year. But I've uncovered a way to take advantage of the growing market for spin-offs right now.
And we'll do it with a single investment that has beaten the market by 65% over the last two years.
I've been around high-tech investing for more than 30 years now, and I haven't seen this many spin-offs since 2000.
Spin-offs are not limited to high-tech, of course. However, of the roughly 30 major spin-offs in the works, 19 – or nearly two-thirds – are related to tech or the life sciences.
According to forecasting firm Dealogic, corporations have sold or spun off $1.6 trillion worth of subsidiaries and business lines globally so far this year. And by its measures, Dealogic says this is the most active the spin-off market has been since 2007.
I pay attention to spin-offs because I know just how lucrative they can be for tech investors. And the research backs me up.
For instance, a Lehman Bros. study found that spin-off companies beat the market by 40% in the first two years, while a Penn State University study found a three-year return of 76% – enough to beat the market by 31%.
In other words, spin-offs create "easy money."
Before we get to our own spin-off investment, let's take a look at this early fall's trio. We're already invested in a couple of them.
I first recommended eBay to Strategic Tech Investor readers in April 2013. And I agreed with activist investor Carl Icahn's quest to split up the online auction firm earlier this year.
The PayPal spin-off is going to be a major boon for eBay shareholders, who already saw their shares jump 7.5% on the news. The whole digital payments realm is finally opening up – the recently announced Apple Pay offering from Apple Inc. (Nasdaq: AAPL) and AliPay from Alibaba Group Holding Ltd. (NYSE: BABA) are two great new examples.
And PayPal, as the "growth" component of eBay, is poised to capitalize.
Sales at PayPal nearly tripled during the five-year stretch that ended in 2012, and the eBay unit now "facilitates" $1 of every $6 spent online. But PayPal is ready to leapfrog eBay's core "marketplace" business. In the calendar second quarter, PayPal sales jumped 20% to $1.95 billion, while eBay's mainstay business saw its revenue advance 9% to reach $2.17 billion.
Hewlett-Packard also has been a recommendation around here for a while. I first shared it with Strategic Tech Investor readers in July 2013, and it clobbered IBM Corp. (NYSE: IBM) in our "Clash of the Tech Titans" this past July.
And since then, HP shares have reached peak gains of 56.8%.
In the split, HP Inc. will devote its operations to PCs and printer sales. Hewlett-Packard Enterprise will serve large organizations by focusing on computer servers, data-storage equipment, software and consulting services.
HP said the change will allow the enterprise unit to focus on such growth areas as cloud computing and Big Data at a time when PC sales are week, declining 10% last year.
And at Symantec, one spin-off will focus on computer security, including the company's well-known Norton antivirus software. The other will specialize in information management, including backup and recovery, archiving and "eDiscovery."
For this deal, think of the security unit as the "parent company." Symantec said investors will receive shares in the information management unit as a special tax-free dividend.
The One Investment
About the Author
Michael A. Robinson is a 36-year Silicon Valley veteran and one of the top tech and biotech financial analysts working today. That's because, as a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs, scientists, and high-profile players. And he brings this entire world of Silicon Valley "insiders" right to you...
- He was one of five people involved in early meetings for the $160 billion "cloud" computing phenomenon.
- 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.
- As cyber-security was becoming a focus of national security, Michael was with Dave DeWalt, the CEO of McAfee, right before Intel acquired his company for $7.8 billion.
This all means the entire world is constantly seeking Michael's insight.
In addition to being a regular guest and panelist on CNBC and Fox Business, he 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 the word "bailout" became a household word.
Silicon Valley defense publications vie for his analysis. He's worked for Defense Media Network and Signal Magazine, as well as The New York Times, American Enterprise, and The Wall Street Journal.
And even with decades of experience, Michael believes there has never been a moment in time quite like this.
Right now, medical breakthroughs that once took years to develop are moving at a record speed. And that means we are going to see highly lucrative biotech investment opportunities come in fast and furious.
To help you navigate the historic opportunity in biotech, Michael launched the Bio-Tech Profit Alliance.
His other publications include: Strategic Tech Investor, The Nova-X Report, Bio-Technology Profit Alliance and Nexus-9 Network.