Peter Lynch called them “astoundingly lucrative investments.”
Joel Greenblatt — co-founder of Gotham Asset Management — agreed that “you can make a pile of money” from them.
And Warren Buffett said they provide “more steady absolute profits from year to year.”
These legends were talking about spinoffs.
Spinoffs happen when a company decides to spin off a section of its business.
And the reason these greats spoke so favorably of them is because…
With spinoffs, there’s a glitch in the market that creates huge opportunities.
It’s the one area where Main Street investors have a huge advantage over Wall Street.
And right now, I’m seeing a bumper crop of spinoffs happening.
Here’s why…
Trimming the Fat
It’s called “deconglomeration.”
Over the past few years, big businesses have gotten a lot bigger.
But this bigness translates into slower-moving organizations — more bureaucracy, complications and lower profits.
So, management teams across industries have been slimming down.
They need their businesses to shed weight.
The slimmer, the better.
And that means ditching divisions and segments to unlock shareholder value.
Out go the weak business divisions that are dragging profits … and the divisions that have different focuses from the main business.
Those are the divisions that management decides to spin off.
The bottom line is…
There are a whole bunch of reasons for management to spin off divisions.
But regardless of how they happen, there’s lots of money in those hills.
And now, they’re happening at an increasing pace…
Leaner and Meaner
In the last two years, over 100 spinoffs were completed.
Some of the biggest global corporations were among them.
For example, IBM recently spun off Kyndryl.
And Prudential spun off Jackson Financial.
But it’s not just U.S. companies that are spinning off divisions.
German auto manufacturer Daimler spun off Daimler Truck.
And French media holding company Vivendi spun off Universal Music.
These segments were getting lost in the sauce inside a big company.
But as independent companies, they’ll be more focused.
So, regardless of the market environment, this will be a huge year for spinoffs.
And while Mr. Market misses the bigger picture on them, Main Street investors like us can profit.
I’m putting together a video where I’ll show you how to do that — and which spinoffs I’m looking into right now.
Be sure to keep an eye on your inbox for it soon!
Regards,
Founder, Alpha Investor