Will GE’s New Spinoff Pay Off for Investors?

January 6, 2023

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Last I wrote to you, we were talking about the immense profit potential hidden in so many of the recent mega-spinoffs.

There’s more where that came from…

We’re having great success playing the idea in Venture Fortunes, our research service aimed at companies that are new to the market or raising money outside of the public market.

Last year was a booming one for the trend. Spinoffs were responsible for some of the most successful trades of 2022. And now – just days into the new year – we may have already seen the biggest deal of 2023.

But will it be the most profitable?

It’s not often we see the launch of a new ticker… or a fresh entrant to the S&P 500 Index.

But when General Electric (GE) spun out its GE HealthCare Technologies (GEHC) business on Wednesday, the new company immediately made the list, pushing real estate giant Vornado Realty Trust (VNO) out of its place.

GE has been talking up this deal for quite a while. When it’s done restructuring, the iconic two-letter ticker symbol will represent just a sliver of its former business. GE will focus on only aviation.

In addition to this week’s spinoff, GE will soon set free its energy and power business, GE Vernova… leaving a trail of three companies where a giant once stood.

Wall Street is applauding the news. If historical trends hold true, shareholders in all three companies are likely to make money.

Why?

Well… it’s like I say so often around here. Money goes where money is treated best.

In these big conglomerates, millions – if not billions – is often moved from one business to the next. GE’s healthcare business is quite a cash cow. It brings in some $18 billion in sales each year.

Imagine where a lot of that money went in 2022, when the company’s aviation business suffered mightily. Cash flow from one business was used to keep the lights on in another.

It’s been a problem since Jack Welch spread the company far and wide in the 1990s.

But now, as a standalone company, GE HealthCare’s cash is GE HealthCare’s cash. It doesn’t have to share it.

That means immense things for research and development. It means great things for the company’s M&A ambitions. And it means big things for shareholders, who will get any excess cash back in the form of dividends and buybacks.

No longer is one business’s profit another’s subsidy.

Plus, investors interested in owning a slice of one of the world’s largest aviation businesses no longer have to invest in a healthcare outfit to do it.

Again… money goes where it’s treated best.

The same holds for management too.

Top executives in these big firms are used to leaping from one idea to the next. But they don’t like it.

Look at Elon Musk. He’s running a social media site, a car company and a rocket maker. Investors in all three would much rather he focused on just one.

At GE, top brass had to focus on airplane engines, wind turbines… and the latest in radiology technology. Nobody can be an expert in all three.

Thanks to this series of spinoffs, GE’s executives no longer need to try to be.

So will this massive reshuffling of an iconic business pay off? Will it be a boom or a bust for shareholders?

History tells us a boom is on the way.

Folks who buy the brand-new shares of GE HealthCare will likely be rewarded handsomely over the next 24 months.