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I’m fond of spin-offs—companies that are “spun off ” from larger companies and now trade as independent entities, explains Chuck Carlson, dividend reinvestment expert and editor of DRIP Investor.
I like spin-offs for a number of reasons. First, spin-offs oftentimes fly under Wall Street’s radar, and such “undiscovered” companies can provide good value.
Spin-offs also typically undergo selling that has nothing to do with the investment merit of the company. For example, an index fund manager will likely be forced to sell a spin-off if the spin-off isn’t part of the index the manager is replicating.
Another example is a spin-off that doesn’t pay a dividend will have to be sold if the investment manager’s mandate is to invest only in dividend-paying stocks. When a stock is sold for reasons other than its investment merit, it can open up opportunities for bargain hunters.
One spin-off that caught my eye is Valvoline (VVV). The company was spun off from Ashland Global Holdings (ASH). Valvoline is a leading producer and distributor of premium-branded automotive, commercial, and industrial lubricants, and automotive chemicals.
The company operates and franchises more than 1,070 Valvoline Instant Oil Change centers in the United States. It markets Valvoline lubricants and automotive chemicals, MaxLife lubricants, SynPower synthetic motor oil, and Zerex antifreeze.
The firm ranks as the second-largest quick-lube chain by number of stores and the third-largest passenger car motor oil brand in the DIY market by volume in the United States.
Valvoline stock has traded pretty much sideways, which is not surprising given its fairly new public profile. I think there is probably some misconception about the company and its business — it is not an oil and gas producer or even related to the energy sector. Rather, it is a play on the do-it-yourself market in the auto sector.
The stock, yielding just under 1%, should have good price support in the $20 level. Long term, I like these shares and view them as an interesting play for patient investors.
Charles Carlson is the CEO of Horizon Publishing, an investment newsletter publisher, and is also the CEO of Horizon Investment Services, a money management company.
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