Stockpickr member Paul Simenauer, who trades for his own account, keeps track of the Special Situation Investing: Spinoffs and Activist Situations portfolio. These are two areas in which retail investors can get an edge over the professionals by nimbly trading around the positions and piggybacking the best pros. Here are some of the stocks in his portfolio (he's long all of these stocks):
Time Warner Cable
, which was spun off by
. Simenauer notes:
A Time Warner spinoff. Time Warner's cable division acquired Adelphia in bankruptcy court after the Rigas family scandal, and now Time Warner has divested of its entire cable unit. Second largest cable provider in the U.S., likely to be ignored by Wall Street.
The company trades for less than 10 times cash flows compared with an industry average over 20.
Jim Cramer also mentioned TWC in his portfolio of
. Also on the list are
Another spinoff, from
. Simenauer notes:
As a directory business, it is boring and will be overlooked by others.
Twenty two percent of Verizon's debt has been piled onto this company, making it extremely leveraged. This increases the potential reward, while reducing the downside risk, assuming we bought the stock at a margin of safety. It is basically a leveraged finance play.
Institutions don't want this stock -- it only has a market cap of more than 4 billion dollars and will not meet the criteria of many institutional portfolios.
Another portfolio tracking spinoffs,
also owns IAR, as well as
(which is also on
(because it's a parent of spinoffs) and others. The creator of the Spinoff 101 portfolios notes:
Spin-offs can make great investments for several reasons: Look for deals where management gets a big payday if the spin-off succeeds. Don't always fear leverage dumped on the spin-off. This leverage can give it octane. The parent can sometimes be a good buy too because 1+1 sometimes equals 3.
They usually result in institutional selling which temporarily depresses price.
The independent unit has more entrepreneurial freedom.
Separation can create a separate value for a unit depressed by a parent's troubles.
For the rest of the top spinoff situations, check out
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