No Money for Wall Street Means More for Us
Editor's note: When a company spins off a division, Wall Street doesn't always rush to cover the new stock. In fact, according to Market Maven editor Gabe Marshank, the opposite can happen. Overlooked by analysts, these "orphan" companies are often left trading at bargain prices... creating a rare opportunity for investors willing to look where others aren't.
It's the closest thing the market offers to a free lunch...
When a big company has a division it no longer needs, it typically has two choices. It can find a buyer... or spin that division off as a stand-alone, publicly traded company.
And when I worked on Wall Street, spinoffs were one of my favorite hunting grounds for new investments.
I saw these opportunities again and again at every fund I worked at – under Steve Cohen at SAC Capital Advisors and Leon Cooperman at Omega Advisors. With David Einhorn at Greenlight Capital, I pitched him on a spinoff of an obscure German utility. The trade netted us a more than nine-figure gain.
Here's what makes them such a great moneymaking opportunity...
When a company raises money through a typical IPO, every investment bank on the deal has a financial incentive to sell it. As underwriters, they get paid when the stock is actually sold. They're motivated to hold road shows, publish research notes, host analyst calls, and more.
It's all designed to find the stock a home. By the time shares start trading, everyone already knows the bull case.
Spinoffs work differently. The spun-off company, or "SpinCo," is a division of a parent company that has been separated to stand alone. Its stock is then simply handed to existing shareholders.
No money changes hands. No bank takes a fee. No one on Wall Street is getting paid to produce research.
The new company arrives on the stock market as an "orphan" – uncovered, unfollowed, and frequently unwanted. It's often worth just a fraction of the parent company, and it's usually in a different industry.
Fund managers who owned the parent company have two options: learn an entirely new, smaller stock... or dump it without a second thought. Most pick the latter.
And with no investment bank sponsoring the stock, no one is standing ready to absorb all those shares.
This dynamic means regular investors can actually buy shares cheap – unlike what you see with a typical IPO. It creates an entry point.
But another dynamic at play is just as important...
Usually, the SpinCo is a small division of the parent company operating in a different industry. With limited oversight and resources, such divisions are frequently undermanaged.
But now with the freedom to operate on their own, they can rightsize their business, focus on successful product lines, exit weaker ones, and use their own stock as currency to attract talented managers.
That means the SpinCo comes out cheap and operating better. And the stock goes from under-the-radar to market-beating champion.
Some recent spinoffs have delivered proof of concept...
Everus Construction (ECG) is a construction business spun out of a North Dakota utility in 2024. It's now one of the leading players in the AI infrastructure build-out. The stock has more than tripled since going public.
Sandisk (SNDK) is a flash-memory business that Western Digital (WDC) spun off in February 2025. It hit the markets during a weak point in the memory industry's cycle. But as Wall Street realized that Sandisk's products would fill AI data centers, investors piled in.
Sandisk closed its first day of trading at around $49 a share. Today, it trades for around $1,700... more than a 30-fold increase. It's one of the most extraordinary rerating stories in spinoff history.
Bloomberg tracks the performance of all U.S. spinoffs. And its U.S. Spinoff Index is up more than 400% since the end of 2023.
But you can do better by choosing the right spinoff... what I call an investable spinoff, or "ISO."
For my Market Maven subscribers, I find ISOs using a back-tested system that beat the S&P 500 Index by 5 percentage points annually over the past decade.
It scores every sizable spinoff against the handful of factors that actually predict whether an orphan rerates or rots – the things you can know in advance, not the ones you only understand in hindsight.
Then I focus only on ISOs that can rise by at least 200% to 400% within three to five years.
I just went on camera to reveal the ultimate ISO. In my new presentation, I explain more about the power of spinoffs... how my ISO system works... and my proven track record of winning ISO recommendations.
You can watch my presentation for free right here.
Good investing,
Gabe Marshank
Editor's note: Some of the world's greatest investors have discovered a way to beat the market without chasing the latest hot stock. Investing legend Warren Buffett says it can give investors a major edge, even when the market is falling. Now, Gabe is revealing what these investing legends know – and how he's using his system to identify the top performers.
Further Reading
"The stocks you hear about at your neighborhood bar are almost never the ones you should be buying," writes Whitney Tilson. In fact, popularity may be a warning sign. If you look at the stocks that investors love to own, you can see a surprising gap between the crowd's hopes and what the returns really say.
Sometimes, post-bankruptcy businesses can be deeply misunderstood. They've been written off, abandoned by old shareholders, and largely ignored by Wall Street. But if the underlying assets are still valuable, that pessimism can be an opportunity.