Kiplinger - The Skinny on Spin-Offs Oct. 2023
Aug 15, 2023
In truth, performance is mixed. GE HealthCare Technologies is up 39% since it began trading on January 4. But ZimVie, a dental and spinal treatment offshoot of medical-devices giant Zimmer Biomet, has lost 64% of its stock value since March 2022. “Spin-offs are not a sure bet,” says Jim Osman, founder and chief executive of The Edge Group, a firm specializing in fundamental analysis of spin-offs and other special situations.
Yet, he says, because spin-offs are smaller firms that are underfollowed by analysts, investors have more chances to uncover index-beating returns. And spin-offs can be bargains. In a spin-off distribution to parent-company shareholders, “investors gain these shares by default and sell them in the open market pretty much immediately, often making them cheap companies that no one is looking at,” says Osman. “It’s at this point where X marks the spot and you should start digging.”