Madoff and Spin Offs?

What in the world could Bernard Madoff have to do with stock spin offs you ask? Very good question. Actually, Madoff has very little to do with spin-offs except that he is the current poster boy for due diligence.

Due diligence in spinoff investing is the difference between winning and also-ran. While as a group spin-offs do better than the market as a whole, each is an individual with its own characteristics, potentials, reasons, and risks. They are not all done to make you and me money!

For an article on exactly what the Madoff ripoff has to say to us spin off investors, click here.

Myriad Genetics (MYGN) Post-Spinoff Price Dive Apparently Not Spinoff Related

Myriad Genetics' MYGN daily chart looks like someone drove it off a cliff on the night of June 30, 2009. When the dust had settled on July 1st, what you would have paid $35.65 for the day before would now only cost you $26.02. Of course if you owned it, your selling price saw similar deterioration.

What happened? How could the stock spin-off of Myriad Pharmaceuticals MYRX, valued by the market at around $4, take so much out the parent? Is the parent the one to buy now?

Apparently not according to a recent online Barrons article by Teresa Rivas. Looks like Myriad Genetics has plenty of issues to deal with above and beyond the current economy that have nothing to do with the spin-off.

Frankly, I was hoping that it was spinoff related and that in this case it would be the parent who was getting irrationally sold, but it looks like that is not the case.

Oh well. We'll just keep watching.

Positive Spin-off Stock News Increasing

News that companies may be considering what I think of as "positive stock spin-offs" seems to be on the upswing. It is a relief to read about spin-offs that are hoping to capture the positives that can be gained by separating off portions of companies that are likely to do better standing alone than as part of a larger entity.

After a number of reports of companies wanting to spin off toxic portions of their businesses to get responsibility for them into someone else's hands ( anyone else's ), this can only be viewed as positive.

For us value investors, when a deal can be put together that creates the edge that spin-off stocks have had in the past, this can only be viewed as a positive sign.

Are Stock Spin-offs Different Now?

Spin-offs have been good deals for a long time, but is it different now? We've all had it hammered into us that there are few more dangerous ideas than that "it is different this time." Sooner or later it turns out that it wasn't different and your money is down the drain.

So, how about the other direction? Everyone thinks that things are awful. It's different now?

This probably is as important a time as any to be watching spin-offs. The stock spin-off remains a good reason. That is not different. The trend is down right now, maybe heading toward flat. That is different, so we need to be careful, but not immobile.

Price and volume are still our two primary clues to what is really going on and whenthey turbn positive, spin-offs will be tops on our watchlists.

Will Spin-offs Lead The Way Out?

If there is going to be an end to the present mess, then, yes, spin-off stocks should be excellent candidates to lead the way. On the other hand, they aren't magic and there is no reason to believe that they will levitate in an ongoing downtrend.

As ever, it comes back to the business, the balance sheet, and a move.

A short spin-off stock watchlist and comments can be found at www.stockspinoffblog.com.

Stock Spin-offs: a reason and a move

Stock spin-offs provide a pool of stocks that can offer the small investors an edge, but it is only just that, an edge.

It's not a sure thing. It's not a buy it and forget it situation. It's not a money machine for the lazy.

One of the my favorite writers on investing and speculating, Gerald Loeb, wrote many years ago that what we are looking for is a reason and a move. All the great fundamentals in the world are worthless if the stock doesn't move. By the same token, just because a stock is going up in price right now doesn't mean that it will keep going up long enough to make any real money.

So the group of stock spin-offs provides an heightened percentage chance of finding companies that are likely to grow their stock prices. Then we need to check out their business fundamentals to winnow out the ones that are being spun off for reasons or in ways that make us not want to be involved. Finally, we need to let the price and volume prove to us that there is indeed something happening in the market's perception of what this one is worth.

Only when the reasons are validated by a move do I want to be getting involved.

Chesapeake Energy (CHK) Planning Spin-off

One of the reasons stock spin-offs are said to outperform the market in their first three years of existence is that they are often sold for reasons unrelated to the actual prospects of the the company which results in an undervaluation of the shares.

In the case of the announcement by Chesapeake Energy that they intend to spin-off their midstreams operations to unlock assets, one may wonder if this one will work that way. It is in the same general industry as the parent, so analysts probably do know how to evaluate it. However, its size may initially work against it as perhaps would the possibility that it will come out as an MLP.

MLP's in similar businesses are certainly not overpriced right now, though some who follow them say they are undervalued and misunderstood. So, maybe just entering this field will put this one in a reasonably good buy range.

Time will tell.