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In June 2012, in the Private Briefing report "Two Years From Now, You'll Wish You'd Bought This Stock," resident tech expert Michael Robinson recommended eBay Inc. (Nasdaq: EBAY) as a profit play that was poised for a nice run.
Michael was right on the money.
eBay shares have zoomed more than 50% since then.
As it's turned out, however, this is one of those rare stock stories that's become better as time has passed.
And a plan to break into two companies – with the spinoff of eBay's PayPal digital payments unit – prompted me to re-recommend the stock in early October. (Since then, the stock has surged about 11.4% – versus only 6.3% for the Standard & Poor's 500 Index.)
eBay is moving ahead with the spinoff plan. And there are some brand-new developments – additional catalysts that can ignite torrid growth in PayPal's share price.
It's time for us to look at this stock anew.
And that's just what we're going to do for you today.
Breaking Up and Paying Off
We've been talking about the actual PayPal spinoff for months now.
But the details are finally coming together.
According to insights released yesterday, PayPal will become a public company on July 17 when it is spun off from eBay – and will begin trading on the Nasdaq under the ticker "PYPL."
But today is even more significant. According to published reports, that's when current eBay "shareholders of record" will receive one share of PayPal common stock for every share of eBay they already own.
That makes this afternoon a kind of "trade deadline" to get PayPal shares via the spinoff.
Indeed, the San Jose, Calif.-based company is already trading on a "when issued" basis under the Nasdaq ticker PYPLV.
We like this deal – in large part because, as you folks know, we really love corporate spinoffs.
Editor's Note: As a special service to Money Morning readers, we're providing you with the Roadmap To Growing Rich From The Spin-Off Boom. In it, you'll find three additional spinoffs that could double your money this year. Click here to learn how to download your copy.
These transactions, where one company wins its freedom from its parent, are the Corporate America version of the Declaration of Independence.
But these "Declarations" benefit both parties.
Freed from the need to "conform" to a common corporate mission, the two newly independent firms are able to pursue independent, profit-maximizing growth strategies that also deliver peak shareholder value.
That's why spinoff stocks – as a group – tend to deliver market-crushing returns for years and years after the breakups occur.
In fact, as we told you a year ago in a free special research report on spinoff profit plays, a number of institutional and academic research studies show that spinoff stocks trounce general market averages for as long as three years after the transaction. For instance, Lehman Bros. research found that spinoff companies beat the market by 40% in the first two years, while a Penn State University study found these stocks generated an average three-year return of 76% – enough to beat the market by 31%.
Spinoffs aren't "free money." But in the stock market, they're about as close as you're going to get.
But here's the coup de grâce: Because they are so focused, so effective and so profitable, many spinoff companies are ultimately taken over at hefty premiums to their market price.
In this "New Age of Digital Payments," we could easily envision a big player snapping up PayPal – one of the rare "turnkey" heavyweights in a brand-new business.
As Carlos Kirjner, an analyst at Bernstein, said in a brand-new research report, "PayPal is to payments what Amazon.com Inc. (Nasdaq: AMZN) is to retail or Netflix Inc. (Nasdaq: NFLX) is to entertainment."
So there's a concrete business allure here.
But even if PayPal doesn't end up as a buyout target, you can count on the stock to deliver market-beating gains for the next several years.
Profit Play Intelligence Report: 3 More Market Beating Spinoffs Are Coming Fast. Details Here.
To see why, let's look at a deal the company cinched just last week. And we'll see how that acquisition fits into a larger – and highly aggressive – growth strategy PayPal has already embarked upon.
A "New Deal" for PayPal
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.