Spinoff stocks have crushed the market and the outperformance is bound to continue, according to a top Wall Street strategist. So what can investors buy now to take advantage of this trend?
"We believe the prospect of modest top-line growth and flat margins in 2016 will spur managements to pursue corporate spinoffs as a means of boosting shareholder returns," Goldman Sachs strategist David Kostin wrote in a note to clients Thursday.
Companies that are spun off beat the parent and the return by a median of 9 percent and 6 percent in the first two years after the spinoff since 1999, according to the strategist.
Kostin also found if a spinoff has three key alpha-generating qualities versus the parent, the stock performance is much higher than the parent's. The qualities are a lower price-to-earnings multiple, lower expected earnings growth and a different industry.
"The best performing SpinCos possessed all three attributes, outperforming their Parents by a median of 29 percent and 47 percent during the one- and two-year post-spinoff periods with hit rates of 80 percent and 90 percent, respectively."
Investors can thereby generate alpha by going long the spinoff and shorting the parent company. Here are 10 stocks that have all three of Goldman's spinoff alpha-generating characteristics right now.
