By Antoine Gara, Senior Writer, Forbes:
A flurry of spinoffs from companies such as DuPont , Baxter International BAX +0.00%, Energizer Holdings ENR +100.00%, Gannett GCI -7.42%, and Babcock & Wilcox formally began trading on Wednesday, as firms distribute businesses to shareholders and plot a more straightforward corporate strategy heading into the second half of the year. Spinoffs are often an opportunity for value-hunting investors to buy into a business at a discount, and they can lead to improved performance at the parent company, but quality matters.
Among today’s current crop of spins, Baxalta, a biosciences unit being spun from Baxter International, stands out as the cream of the crop. The business, which is replacing QEP Resources QEP +1.91% on the S&P 500 Index, is a leader in hematology and immunology with $6 billion in annual revenue, and it is in the process of bringing a pipeline of orphan drugs to market. Those attributes may appeal to competitors, who are bolstering their operations through acquisitions, and to investors in the red hot biotech sector, given the potential upside to Baxalta’s drug pipeline.
Jonathan Morgan, head of research at The Edge Group, told Forbes Baxalta is his top pick among the spinoffs hitting stock markets in July. He compares Baxalta’s margins, pipeline, and leading position in niche markets like hematology and immunology to the position of Humira-maker AbbVie ABBV +0.00% when it was spun from Abbott Laboratories ABT +0.00% in late 2012, and animal health specialist Zoetis ZTS +0.00% when it was spun from Pfizer PFE -0.73% in 2013. Many of the spins hitting the market come from high quality parent companies, and have strong prospects, but investors may want to wait for a better entry point. The Edge’s Morgan points out that there is a dearth of spinoffs set to hit the market in coming quarters.