In Praise of the Break-Up

 | Feb 21, 2014 | 5:30 PM EST  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

nov

,

oxy

,

tkr

,

act

,

frx

,

aal

,

mrk

Sometimes there is utter foolishness and people simply don't get what's occurring in a stock.

In Get Rich Carefully I acknowledge that there are two kinds of self-help that management can bring about: making acquisitions, like Actavis (ACT) buying Forest Labs (FRX), or splitting a company to bring out value.

The former brings instant success -- think of American Airlines (AAL) -- while the latter is chronically misunderstood by the marketplace. Yet, as I show in "Get Rich Carefully," the results can be amazing, including the single-best creator of wealth, the break-up of the old Phillip Morris. But there are many others, including the break-up of some of the oil companies and the split-up of Fortune Brands.

In each case, there was an initial level of rumor in the story that produced a rally, then the actual announcement of a split that produced another rise, then the actual split, and finally the aftermarket run as new management focused on creating value. I documented dozens of these before including them in the book. Right now, the optimism you see in Merck (MRK) is all about the leadoff to the restructuring and spinoff, and it is one the book predicted early on.

But three of these current break-up situations, owned by Action Alerts PLUS, have no yet reached the fruition that I believe will ultimately occur: National Oilwell Varco (NOV), Occidental Petroleum (OXY) and Timken (TKR). All three are taking extraordinary actions, and while the run-up to the actions and the announcements produced good gains, those gains have either evaporated or been consolidated.

Nevertheless, as I found in my study, the best is yet to come. OXY is spinning off its prized California possessions which are, by far, the best left in the country to exploit. Timken is splitting into a virtual commodity company as well as a highly value-added steel company. That will be just the beginning of the big vault. National Oilwell is the most mystifying, though. This stock has done nothing since the announcement and is now going down. That's illogical, and I bring it to your attention simply because it will only be a matter of time before you see the real value come to the fore.

I have played these previous breakups whenever possible, and they have been among my most successful holdings. I believe that NOV, TKR and OXY will be in that pantheon when all is said and done.

Columnist Conversations

Is this the biotech revolution or the biotech bust? View Small Cap Biotechs Like Never Before: Transparency is...
Market gets hit from impact of sanctions against Russia for second day in row but manages to rally a bit to en...
We took out some of the high end of support, but I'm still looking at this symmetrical pullback for entries on...
going into trading today roughly 37 million shares of X (US Steel) was held short.today big X has traded 27 mi...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.