Conglomerates with Breakup Potential
Investors are always on the lookout for conglomerates that can unlock their true value by simplifying their holdings. One way to achieve this is through spinoffs, where a parent company breaks up into smaller, more focused entities. This process can help eliminate the 'holding company discount,' which occurs when a multifaceted conglomerate trades for less than the total value of its various parts.
A recent example of this is Honeywell International Inc., which spun off its aerospace division on June 29. The new stock, now trading under the symbol HONA, has already shown promise in the market. This move was prompted by activist investor Elliott Investment Management, who sought to increase the value of Honeywell's shares.
To identify other conglomerates with similar potential, TSI Network used its Dividend Sustainability Rating System. The system awards points to companies based on factors such as continuous dividend payments, management commitment to dividends, and industry leadership. Five stocks emerged from this analysis: Power Corp. of Canada, ATCO Ltd., Illinois Tool Works Inc., 3M Co., and Dover Corp.
These companies have diverse operations, but also exhibit significant breakup potential. For instance, 3M Co. has already spun off its healthcare unit as Solventum Corp. in 2024. Investors are advised to conduct further research on these stocks before making any investment decisions.