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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 one of the top financial analysts working today. His book "Overdrawn: The Bailout of American Savings" was a prescient look at the anatomy of the nation's S&L crisis, long before the word "bailout" became part of our daily lexicon. He's a Pulitzer Prize-nominated writer and reporter, lauded by the Columbia Journalism Review for his aggressive style. His 30-year track record as a leading tech analyst has garnered him rave reviews, too. Today he is the editor of the monthly tech investing newsletter Nova-X Report as well as Radical Technology Profits, where he covers truly radical technologies – ones that have the power to sweep across the globe and change the very fabric of our lives – and profit opportunities they give rise to. He also explores "what's next" in the tech investing world at Strategic Tech Investor.