Taking A Positive Spin
A study by Lehman Brothers found that spinoffs beat the S&P 500 by an average of 18% in their first two years as independent companies.
Among the reasons are these: a new stock often trades at a discount early on because investors who never meant to own it sell their shares - thus driving down the price, while eager buyers don't arrive until there is analyst coverage as well as a track record.
Also, managers of the new company are often motivated by incentives tied directly to its performance, in a way that was impossible in a larger company.
And incidentally, the former owner that "sired" the new spinoff often tends to beat the market as well, after shedding a division that really did not fit well with other corporate businesses.
* * * * *
Among the reasons are these: a new stock often trades at a discount early on because investors who never meant to own it sell their shares - thus driving down the price, while eager buyers don't arrive until there is analyst coverage as well as a track record.
Also, managers of the new company are often motivated by incentives tied directly to its performance, in a way that was impossible in a larger company.
And incidentally, the former owner that "sired" the new spinoff often tends to beat the market as well, after shedding a division that really did not fit well with other corporate businesses.
* * * * *
posted by Bob Moser at
1:45 PM
0 Comments:
Post a Comment
<< Home