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I've always been a big fan of what are known as spin-off deals because they unlock a lot of hidden value – and give shrewd investors market-beating gains.
Take Eaton Corp. PLC (NYSE:ETN), which is looking for a way to do all it can to brighten its business – and shareholder returns.
That's why the global leader in power management technologies announced it is spinning off its LED lighting business.
The move is designed to allow Eaton to focus on its core technologies, while the lighting unit can focus more heavily on a market forecast to be worth $45 billion by the end of 2023.
By doing so, Eaton is keeping the bulk of its more than $23 billion in global sales in-house, while shedding an operation that, last year, had sales of more than $1.8 billion.
I believe this is a great move for the company and its investors.
And today, I'm going to reveal a little-known way to play this highly lucrative trend in spin-offs…
Spin-offs in the M&A Market
Actually, Eaton's move is a foray into a big trend that doesn't get much attention from the nation's financial media. That's ironic since there seems to be a major spin-off announced just about every week.
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Dealogic has estimated the movement toward companies shedding part of their businesses as being worth $1.6 trillion. For the last several years, the firm notes, spin-offs have remained a very active part of the overall M&A market.
For instance, Novartis AG (NYSE:NVS) is expected to complete the spin-off of its eye care business Alcon, which had 2018 sales of $7.1 billion, in the next few weeks.
And in late February, General Electric Co. (NYSE:GE) completed the $2.9 billion spin-off of its transportation unit. Just three weeks before that, medical distributor Henry Schein Inc. (Nasdaq: HSIC) shed its animal health business and completed a merger to create Covetrus Inc. (Nasdaq:CVET) in a deal valued at up to $1.2 billion.
History shows that these kinds of deals can be very lucrative for investors.
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%.
There's just one problem. By definition, most investors can't cash in, unless they are lucky enough to own stock in a firm that decides to ride this trend.
But I have uncovered a way that you can take advantage of the growing market for spin-offs right now, with an investment that has beaten the by more than 33% since the S&P 500 rebounded from its recent lows on Dec. 24.
An ETF to Play the Spin-off Market
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.