In his book You Can Be a Stock Market Genius, author and investor Joel Greenblatt highlighted the opportunity hidden in mergers and acquisitions, spinoffs, and restructurings. Some deals are so complex that the true value of a stock won't be unlocked until well after the fact, giving savvy investors a chance to get in early and grab hold of shares at a discount. Huge profits are possible, and he achieved 50% annualized returns for a decade investing in them.
We'll look at some announcements presenting an opportunity for profit and pair that with the views of the 180,000 members of Motley Fool CAPS to see what they think of the businesses involved. If the best and brightest in the investment community like these stocks, it may be worth your time to dive in further.
But not every deal is worth your money. It takes diving into the filings to understand the nuances, so don't use the stocks below as a buy list -- more due diligence is needed on your part.
CAPS Rating (out of 5)
Type of Situation
Hillshire Brands (NYS: HSH)
Sara Lee split into Hillshire and D.E. Master Blenders 1753.
News Corp. (NYS: NWS)
Publishing business distributed to shareholders on 1:1 basis.
Again, this is just a starting point for further research. Do your homework before committing real money to these special situations.
It plumps when you cook it
Apparently it is true that nobody doesn't like Sara Lee. After the split and renaming of the company into its meats business and beverage brands last month, investors are scarfing up the resulting companies. The CEO of cosmetics company Coty has already established a near-13% stake in D.E. Master Blenders coffee and tea operations, and there's speculation Hillshire Brands -- which got Sara Lee's Ball Park hot dogs and Jimmy Dean sausages business -- will make a tempting morsel for Kraft (NYS: KFT) , Hormel, or Tyson Foods (NYS: TSN) to swallow. Indeed, it's seen as a foregone conclusion that investors won't have long to enjoy snacking on its shares.
Investors should hope so, since the analysts at Goldman Sachs don't see much upside potential absent an "M&A event," since management offered up some sober guidance last month. That's likely part of the reason behind the muddled outlook of the CAPS All-Stars weighing in on the consumer goods company, more than a quarter of whom think it will have a tough time beating the broad market averages.
Keep an eye on the spinoff's developments and let us know in the comments section below or on the Hillshire Brands CAPS page what company you think might gobble up the hot dog vendor.
Read all about it!
A better bet might be the owner of The Wall Street Journal, Dow Jones, HarperCollins, and the Fox media empire -- News Corp. Although it's been something investors have wanted for years, Rupert Murdoch's decision to split the publishing business from the entertainment side got renewed impetus after the hacking scandal in Britain that still dogs the company.
Still, the spinoff is looking to be a gift to shareholders, who will get a publishing business that is infused with $2 billion in cash and no debt, counter to how most such spinoffs are crafted. According to Murdoch, it will be cash flow positive from the get-go. It will need that helping hand since it's become obvious that newspapers are a dying industry. Warren Buffett might be buying them up, but TheNew York Times' (NYS: NYT) struggles, the bankruptcy of the publisher of The Los Angeles Times, and the demise of Lee Enterprises show it's all a downhill race.
Which is why some analysts are focusing on the legacy entertainment units that will be left behind. According to a Bloomberg report, one analyst said it's "the only things anyone buys News Corp. for" and is what generates the most revenues and profits for the company. Sounds to me like both resulting businesses will make for an interesting investment.
Let us know in the comments section below or on the News Corp. CAPS page whether you think this is big news.
Checking the mercury
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The article Profit From These Special Situations originally appeared on Fool.com.
Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Goldman Sachs Group. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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