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As a follower of Joel Greenblatt's special situations investing philosophy, I look at all domestic spin-offs and frequently invest in them, usually holding on to parent company stocks as well.

Many, if not most spin-offs directly result from activist investor demands. Examples of such activist funds include JANA Partners, Pershing Square, Corvex Management and Third Point. In limited cases, managements break up their companies without any investor agitation. However, in almost all cases, spin-offs are effectuated to increase shareholder value.

Those of you who follow or invest in these types of special situations, must notice, usually with dismay, the initial pop to the stock when a spin-off is formally announced or publicly demanded.

At times the increase in share price of a parent company on announcement is so big that it could easily discourage you from following the situation any further - the thinking being that the easy money has already been made so why bother?

Using a limited sample, I am going to illustrate that even if you had invested blindly in an equal-weighted portfolio of 2011 spin-offs, creating your positions on the first day of spin-off trading, you could have outperformed the stock market (I used S&P 500 Mid Cap Index) by a whopping 20% by the end of 2012!

Here is a list of 13 spin-offs which I tracked in 2011.

Spin-OffSpin-OffBeganFirst DayPrice OnPriceExcess
LMOSLumos Networks Corp10/31/11$11.10$10.02-10%-25%
AMCXAMC Networks6/16/11$35.49$49.5039%30%
GNEGenie Energy Ltd.10/26/11$8.60$7.10-17%-34%
ORIGOcean Rig UDW Inc.10/6/11$14.95$14.930%-26%
MPCMarathon Petroleum6/24/11$37.25$63.0069%61%
HIIHuntington Ingalls3/22/11$37.49$43.3416%9%
WPXWPX Energy, Inc.12/12/11$19.25$14.88-23%-40%
VACMarriott Vacations Worldwide11/8/11$17.99$41.67132%119%
XYLXylem Inc.10/13/11$24.25$27.1012%-10%
XLSExelix, Inc.10/13/11$11.50$11.27-2%-23%
FBHSFortune Brands Home & Security9/16/11$12.70$29.22130%112%
MMIMotorola Mobility**1/4/11$25.05$40.0060%48%
TRIPTripAdvisor LLC12/7/11$27.45$41.9253%37%
MEDIAN    15.6%8.7%
AVERAGE   35.2%19.9%
HIGH    131.6%119.1%
LOW    -22.7%-40.0%

* Acquired by Google

Source: Bloomberg, Yahoo Finance

Of course you could have done better or worse by picking certain spin-offs for your portfolio but heck, 20% outperformance without a lot of extra work isn't too shabby.

In case you are wondering how the parent-company stocks performed:

ParentParent Ex DatePricePriceExcess
TickerCompanyEx DateClose12/31/12ReturnReturn
NTLSNTELOS Holdings Corp11/1/11$25.07$13.11-48%-67%
IDTIDT Corporation10/31/11$11.50$9.54-17%-32%
DRYSDryShips, Inc.10/6/11$2.39$1.60-33%-59%
MROMarathon Oil7/1/11$32.95$30.66-7%-10%
NOCNorthrop Grumman3/31/11$62.71$67.588%5%
WMBWilliams Companies, Inc.1/3/12$26.82$32.7422%7%
MARMarriott International, Inc.11/9/11$30.23$37.2723%6%
ITTITT Corporation11/1/11$18.80$23.4625%6%
ITTITT Corporation11/1/11$18.80$23.46 -19%
BEAMBeam Inc.10/4/11$44.70$61.0937%5%
MSIMotorola Solutions1/4/11$39.77$55.6840%28%
EXPEExpedia Inc.12/21/11$27.89$61.44120%103%
MEDIAN    14.9%4.6%
AVERAGE   10.6%-5.6%
HIGH    120.3%103.3%
LOW    -47.7%-66.5%

Source: Bloomberg, Yahoo Finance

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: Spin-Offs: Great Value Even After Cat's Out Of The Bag