Pre-Spinoff Tyco Is A Buy

Mar. 1.07 | About: Tyco International (TYC)

I recently purchased shares of Tyco (NYSE:TYC) for a longer term investment.

The Investment Ideas:

  • Tyco is a pre-spinoff stock. It is quite likely that after the spinoffs occur, the sum of the pieces will exceed the current price.
  • The stock has very strong sponsorship. Here are some investors that I have a lot of respect for who own Tyco (from the Stockpickr web site):

    David Decker (Janus Contrarian Fund), Renaissance Technologies hedge fund, Mutual Beacon Fund, Yale University, Michael Price, Bill Miller, David Dreman, Oakmark Global Fund, Basso Capital, Matrix Asset Advisors, Robert Olstein, Relational Investors LLC.

  • Street Consensus (or why the security is trading where it is).
    Tyco stock may be depressed because their recent operating results have been just so-so. I think the stock also may still be suffering because of memories of improper behavior (or litigation risk) caused by behavior of former Tyco executives.

    My Contrarian View

    Once the spinoffs occur, memories of the old Tyco management will fade, and I believe the litigation risk is minimal. I also believe Tyco's Healthcare business is more valuable than the street consensus, and might well be purchased at a premium price by a private equity firm.

    Catalysts or "triggers" that could cause the street consensus to change.

    The spinoffs are the catalyst.

    Full Disclosure: I am long Tyco.

    TYC 1-yr chart: