Stock spinoffs remain popular with companies wanting to unlock shareholder value. By creating spinoff stocks that will trade independently on the market, corporations believe they can narrow their focus to core operations while the newly public company doesn’t get lost in the shuffle of its parent’s larger objectives.
According to an April Bloomberg report, there were 211 spinoff stocks last year, down only slightly from the record 234 created in 2021. There have only been about a dozen spinoffs of publicly traded companies this year but possibly twice as many will be created in the back half of the year.
Below are some of the recent spinoff stocks that warrant closer scrutiny by investors.
Grail (GRAL)
One of the newest spinoff stocks to hit the market is Grail (NASDAQ:GRAL). Its path to becoming a public company was convoluted and filled with controversy, but it is a top stock to buy.
Illumina (NASDAQ:ILMN) created Grail and then spun it out in 2016. Four years later it decided it wanted to own it again but Illumina failed to wait until it had the necessary regulatory approvals to do so.
The Federal Trade Commission subsequently sued the company and though Illumina won on appeal, activist billionaire investor Carl Icahn then sued saying the board violated its fiduciary responsibilities in making the acquisition.
Grail began trading on June 25 after the DNA-sequencing company agreed to shed the business. And there is a lot to like about Grail. There are only five cancers that have recommended screening tests and cancers responsible for nearly 71% of cancer deaths have no recommended early detection screening. Grail’s Galleri blood test detects 50 different cancersbefore they are symptomatic.
The problem is the Galleri test is expensive, around $950. It is also not covered by most insurance providers. Grail stock is down 20% since it began trading at $18.35 per share. There is obviously tremendous long-term growth potential though near-term GRAL stock may feel some pressure.
W.K. Kellogg (KLG)
Cereal maker W.K. Kellogg (NYSE:KLG) is the second spinoff stock to consider for your portfolio. Although the breakfast daypart is relatively weak as other grab-and-go options take market share away from cereals, the Kellogg brand remains strong. Depending upon who is counting, the company has anywhere from 25% to 30% market share, just behind General Mills (NYSE:GIS) at 34%.
It was spun off last October as its former parent Kellogg, which changed its name to Kellanova (NYSE:K), focused on the more promising snacks category opportunity. W.K. Kellogg got the cereal business. As weight consciousness grows and drugs like Ozempic, Wegovy and Mounjaro proliferate, there is a concern over the impact it will have on business. Kellogg’s strategy for growth is twofold.
Premiumization in the cereal aisle will help expand margins from the current 9% to the mid-teen range to fill up the company’s coffers. Improving its supply chain will help create cost efficiencies, also saving money. Having built up its cash balances, Kellogg intends to branch out beyond cereal.
There is the possibility a move away from cereal negates the purpose of the spinoff but that was its parent’s imperative. Kellogg sees adjacent markets as a big opportunity, particularly in branding.
For example, it recently partnered with Crocs (NASDAQ:CROX) for a Tony the Tiger and Toucan Sam brand of shoes that was well received. Cereal is a consumer durable product and with W.K. Kellogg stock trading at 9 times next year’s earnings, it is an inexpensive stock to buy for future growth.
Sandoz (SDZNY)
Another October spinoff, Sandoz Group (OTCMKTS:SDZNY) has marched 50% higher since its separation from Novartis (NYSE:NVS). The generic drug and biosimilar manufacturer is seeing strong uptake in Hyrimoz, a biosimilar for AbbVie’s (NYSE:ABBV) Humira, an arthritis therapy. Particularly after CVS Health (NYSE:CVS) removed Humira from its national commercial formularies, Hyrimoz captured 93% of biosimilar growth, according to STAT News.
Sandoz does face some headwinds in its generics business. Due to patent litigation, apixaban, a blood clot prevention therapy for stroke patients, was pulled from the Netherlands market. Yet biosimilar growth far outweighed the negatives.
First-quarter segment sales surged 21% year-over-year to $623 million, marking yet another quarter of double-digit expansion. Omnitrope also continues to show strength. The treatment for growth hormone disorders has been on the market for over a decade and was Sandoz’s first biosimilar.
A strong pipeline coupled with acquisitions bolsters Sandoz Group’s portfolio and positions it for many years of growth.
On the date of publication, Rich Duprey held a LONG position in ABBV stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.