Why Spin-Offs Are Better Than Mega Mergers

Includes: MDLZ, MO, PM
by: Eddy Elfenbein

In general, I like spin-offs and hate mega mergers. Which leads me to some smoking stocks, and they've been smoking lately. Altria (NYSE:MO) is at a 52-week high and it's close to an all-time high.

The company spun-off Kraft (KFT) in 2007. Kraft was already publicly traded but MO decided to ditch its remaining 88% in the company. Then in 2008, MO spun-off Philip Morris (NYSE:PM).

Here's a look at how they've done: (Click to enlarge)


Every one has beaten the S&P 500, which is the gold line at the bottom. Kraft is the red line, Philip Morris is the blue and Altria is the black.

Mega mergers sound great. They make a lot of news, but the results are usually pretty unimpressive. Spin-offs, however, can often be good places to find cheap stocks. I should add that after the spin-off, MO was kicked out of the Dow which is another index it has outperformed.

Disclosure: None