Mario Gabelli says more companies will catch the ‘contagion’ to split up — watch for these 4 potentially lucrative breakups
Mergers and acquisitions have allowed many enterprises to grow, but some of the biggest multinational conglomerates are now doing the exact opposite.
General Electric, Johnson & Johnson and Toshiba all announced that they would split up their businesses recently. And according to GAMCO Investors chairman and CEO Mario Gabelli, more companies could follow suit.
“When the boardrooms of America look at this, when they look at what’s going on, you have contagion,” the billionaire investor told CNBC last week.
Companies break up for different reasons — creating value for shareholders is a common one.
Here are four companies that could be next on the spin-off list. One might be a lucrative pickup, especially if you’re investing for free.
The first one is Macy’s, which, for the most part, is known for its department stores.
In an era when e-commerce stocks are shooting through the roof, being a physical retailer doesn’t get you much investor attention.
Indeed, despite hopping on an impressive bull run over the past 12 months, Macy’s shares are still down 22.5% compared to five years ago.
The business, though, has improved. Comparable sales increased 37.2% at Macy’s owned stores in Q3. Meanwhile, digital sales rose 19% year-over-year.
The company also announced its plan to launch a digital marketplace in the second half of 2022.
Last month, it was reported that activist investor Jana Partners had taken a stake in Macy’s and urged the board to separate its e-commerce business. Jana thinks the online business alone could be worth around $14 billion, which is quite a bit more than Macy’s current market cap of $10.4 billion.
Ford (F) and General Motors (GM)
Electric vehicle stocks are even hotter than e-commerce stocks. Tesla shares have skyrocketed over 2,800% over the last five years, while newcomers like Rivian and Lucid have also made headlines due to the wild ride in their share prices.
The valuation of pure-play EV stocks could be a reason for traditional automakers to separate their electrifying endeavors, according to DataTrek co-founder Nicholas Colas.
“We’ve been around the auto industry long enough (30 years) to know that GM and Ford need to spin off their electric-vehicle operations ASAP,” Colas wrote in a note to investors.
“When it was just Tesla with a crazy valuation, they could afford to dismiss this idea. Now, with Rivian, Lucid, etc., they can’t.”
Both GM and Ford have done well this year, with shares up 60% and 143%, respectively. However, their combined market cap is less than one-sixth of Tesla’s.
To be sure, EV stocks are some of the most volatile tickers out there. But you don’t have to start big; these days, you can build an ESG portfolio just by using some digital nickels and dimes.
Royal Dutch Shell (RDS.A, RDS.B)
This multinational oil-and-gas giant has performed reasonably well in 2021, climbing a solid 20%. Looking further back, though, and you’ll see that the stock is over 25% below its pre-pandemic level.
But more value could be unlocked for shareholders, at least according to billionaire hedge fund manager Daniel Loeb.
Loeb’s fund, Third Point, has taken a sizable stake in Shell. The activist investor is urging the company to break into two — a legacy oil-and-gas company and a renewable energy company.
Loeb argues that a standalone energy business requires low capital expenditures, which would “prioritize return of cash to shareholders.” Meanwhile a standalone renewable energy business “could combine modest cash returns with aggressive investment in renewables and other carbon reduction technologies.”
In a press release last month, Shell said it “welcomes open dialogue with all shareholders, including Third Point.”
Loeb’s other “fine” asset
Companies like Shell aren’t the only things you’ll find in Loeb’s portfolio. He also utilizes a private way to diversify and profit.
If you want to invest in something that has very little correlation with the ups and downs of the stock market, consider this overlooked asset.
By some measures, it has outperformed the S&P 500 by a commanding 174% over the past 25 years.
Investing in the real asset used to be an option only for the ultra-rich, like Loeb. But with a new investing platform, you can take a stake in it, too.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.