We recently published a list of 10 Best Spin Off Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where PHINIA Inc. (NYSE:PHIN) stands against the other spin off stocks.
A corporate spinoff is defined simply as a firm deciding to split a portion of its operations and distribute the shares to its shareholders. However, the rationale for a spinoff is significantly more complicated, ranging from financial or legal causes to competing strategic agendas. According to historical data, spinoffs and parents both generally outperform the market, with spin-offs having an advantage. A widely referenced research in The Journal of Financial Economics discovered “significantly positive” returns for both spin-offs and their parent company during the three years following separation when compared to the market as a whole. Moreover, multiple pieces of evidence back up the data. For example, the Invesco S&P Spinoff ETF, which contains companies spun out from larger corporations in the last four years, returned 74.44% in the last five years.
According to Bloomberg BNN, shares in companies split out from existing organizations beat the S&P 500 by an average of 10% over the next 18-24 months. Meanwhile, the companies that remain after the split perform in line with the S&P 500 for the year after the spinoff closure date. The pace of spinoffs in the United States is expected to quicken in 2025, owing to a string of recent successful spinoffs and growing pressure from activist investors. Speaking on this, Adam Parker, founder of Trivariate Research, stated the following:
“The strong performance of spinoff companies can serve as a barometer for management teams who are looking for successful ways to unlock value.”
For example, Honeywell, a corporation located in North Carolina that specializes in aircraft, building automation, and industrial automation, has revealed plans to split into three entities in order to increase stock returns. It intends to split its automation and aerospace technologies businesses by the second half of 2026, as well as complete the spin-off of its advanced materials segment. Elliott Investment Management, an activist investor, asked for the split last October, anticipating that it could “push the stock up 51% to 75% over the next two years.” Similarly, other firms are also in the process of disassembling themselves. DuPont is to spin off its electronics unit by the end of 2025, resulting in two separate firms, while car components manufacturer Aptiv is also splitting into two.
Our Methodology
For this list, we scoured Insider Monkey’s database of 1008 elite hedge funds’ holdings as of the end of the fourth quarter of 2024 and selected the top ten firms spun out in the previous four years that were popular among hedge fund investors. The list is ordered in increasing order by the number of hedge fund holdings in each business.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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PHINIA Inc. (NYSE:PHIN)
Number of Hedge Fund Holders: 30
PHINIA Inc. (NYSE:PHIN) is a technology company involved in the design and manufacture of complex components for combustion and hybrid propulsion. The company serves both the automotive and industrial industries, with an emphasis on increasing fuel efficiency and lowering emissions. Phinia was formed back in July 2023 when BorgWarner Inc. split out its fuel systems and aftermarket operations into a separate entity.
PHINIA Inc. (NYSE:PHIN) recently released its fourth quarter earnings report, prompting mixed reactions from investors and experts. The company revealed a notable adjusted FCF of $72 million during the quarter alongside $253 million for the full year 2024. That said, Phinia also reported net sales of $833 million in the quarter, a 5.6% decrease from the previous year. When contract manufacturing sales were excluded, the reduction was a more modest 2.9% year on year.
On January 30, Northland launched coverage on PHINIA Inc. (NYSE:PHIN), rating it Outperform and setting a price target of $61. As electric vehicle adoption has fallen short of expectations and ICE and hybrid vehicles appear to have “far more staying power,” the firm believes this will be a significant benefit to PHINIA and that investors “still have yet to realize the growth opportunities and robust shareholder returns” in its future.
Voss Capital stated the following regarding PHINIA Inc. (NYSE:PHIN) in its Q3 2024 investor letter:
“We are long shares of PHINIA Inc. (NYSE:PHIN). A recent spin-off from Borg Warner (BWA), the company is an auto parts supplier that operates two distinct businesses – 1) Fuel Systems (original equipment manufacturer supplier) and 2) Aftermarket automotive products supplier.
The Fuels Systems business is uniquely positioned to capitalize on attractive competitive dynamics that we believe will allow the company to take gobs of market share in its niche markets over the coming years. As an internal combustion engine (ICE) parts supplier pure play, overly hyped expectations of electric vehicle (EV) penetration created an especially good long-term buying opportunity in PHIN earlier in the year…” (Click here to read the full text)
Overall, PHIN ranks 8th on our list of the best spin off stocks to buy according to hedge funds. While we acknowledge the potential of PHIN as an investment, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PHIN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.