As most investors are aware, AT&T (T) has just undergone a significant change. The telecom firm combined its WarnerMedia with Discovery operations to create a new global entertainment company called Warner Bros. Discovery, Inc. (WBD). Three leading advisors, all contributors to MoneyShow.com, look at the spinoff and suggest what both growth and income investors should do with these new “separate” entities.
From Jim Osman’s commentary: “There have been nine Reverse Morris Trust (RMT) transactions over the past five years (2017-22), with a total of 18 companies resulting from these separations. Of those 18 companies, 11 were S&P 500 Index names, and examining their performance against the S&P 500 Index shows that the opportunities to gain outperformance to the Index typically fall within the first month, though that outperformance is a very slim 0.7% above the S&P 500 Index. More importantly, investors made money on eight of the 11 names by the one-year mark with an average return of 18% (which jumps to a 33% total average return if the three companies that lost money are removed), indicating that while S&P 500 RMTs do not necessarily outperform the Index by the one-year mark, investors can still expect these transactions to result in positive returns around 72% of the time.”