SPINOFFS

GE Is Breaking Up With Itself… Again: Why the Company Is Spinning Off Its Most Valuable Business

Jack of all trades, master of none. That’s the mantra Wall Street has taken for years to build up giant companies filled with red tape. But what worked in the early 2000s doesn’t work today, and investors are prioritizing quality over quantity.

This shift has led companies with many business units to trade at a discount — known as the “conglomerate discount.” Take 3M ($MMM), which has over 60K unique products, as an example. It’s trading at a measly forward price-to-earnings ratio of 10.3x — while tech companies with similar revenue and growth often command higher valuations.

Mind the gap: To close this gap (and bolster their stock prices), executives are turning to a tried-and-true method: breaking up into smaller, separately traded entities — and one of 2024’s best-performing stocks is repeating this formula. General Electric ($GE) saw success last year with its spinoff of GE HealthCare ($GEHC), which has rallied over 53% since its demerger. Now, it’s looking to do the same with two of its largest business units, GE Aerospace and GE Vernova.

• Excitement around the two spinoffs has helped $GE rise 31% to start 2024, making it the second-best-performing stock in the S&P 500.

• GE Aerospace will remain the core business of $GE after the separation takes effect on Apr. 2, with the company retaining its cash-cow business, which generated nearly $32B of revenue in 2023.

Spinoffs on the rise

2021 and 2022 were already two of the busiest years for spinoff deals — and 2023 was on pace to be busier. Giants like Johnson & Johnson ($JNJ), 3M, and Pfizer ($PFE) conducted their own spinoffs in recent years.

• Kellogg separated its faster-growing snacks division, Kellanova ($K), from its slower legacy cereal brand, WK Kellogg ($KLG).

• 3M recently approved a spinoff of its healthcare business into a new entity, Solventum Corporation ($SOLV), set to begin trading on Apr. 1.

But will these spinoffs pay off? While they theoretically should help boost stock prices, the Invesco S&P Spin-Off ETF ($CSD), a collection of split-off companies, has far underperformed the S&P 500 in the past five years. Success often hinges on a strong balance sheet and growth potential, with spinoffs that perform well in the first year tending to outperform in the following years, according to Boyar Research.

PARTNERED WITH VEER

E-Bikes Have Exploded in Popularity And This Company Is at The Center Of Its Growth

The e-bike industry has grown tremendously, driven by rapidly improving technology as well as sustainability initiatives to electrify transportation. In 2022, there were over 1.1M e-bikes sold in the US, which is nearly 4x the amount sold in 2019.

Central to this growth are companies like Veer supplying e-bike manufacturers with the first splittable carbon fiber belt drivetrains, which replace outdated, dangerous metal bike chains that don’t hold up under the added electric power of motors.

• Veer has grown over 200% annually, shipped thousands of drive units and developed a network of 50+ retail dealers globally.

• Veer supplies their tech to 15 international eBike, eScooter and other light electric vehicle manufacturers (and counting).

Since their last investment round, Veer has doubled its team, established 8 vehicle manufacturing partners and built out their supply chain.

LARGECAP RECAP

📜 Biden vows to sign TikTok ban bill… if it passes

Remember when Donald Trump pledged to ban TikTok in the US due to national security concerns? While the former President came exceptionally close, he didn’t follow through before leaving office — and now, President Biden is picking up where he left off. But even with bipartisan backing, Congress will have to send him a bill to sign — slimming its approval odds.

• The US House Energy and Commerce Committee unanimously agreed to advance a bill requiring China’s ByteDance, the parent company of TikTok, to sell off its US operations or face a ban.

• House Speaker Mike Johnson says the bill will be voted on in the House. If it passes, it heads to the Senate for consideration, the final hurdle before reaching the President’s desk.

Devil that you know: Complicating matters, Donald Trump has shifted his stance on TikTok. On Monday, he argued against a ban, suggesting it could benefit rival Facebook ($META), which he called an “enemy of the people.” While his reasoning has merit, a recent Pew Research survey found that three-quarters of US teens felt happy or peaceful when away from their phones.

Employers hate this simple trick: Learning critical skills so you can negotiate a higher pay on your next performance review. With Brilliant’s daily bite-sized lessons (6x more effective than watching lecture videos), you can gain career and life advancing skills like programming and data analysis — in just 15 minutes a day. Try Brilliant with a 30-day free trial today →*

Markets & Economy

Wall Street surprised by gold’s record highs: Typically a safe haven during economically volatile times, gold’s steep rise comes as many are optimistic about the US economy. Growing geopolitical uncertainty and the potential for rate cuts this summer are popular hypotheses for its rally this year. [Read]

The strange world of organized retail crime rings: Retail “queenpins” like Michelle Mack of San Diego use networks of shoplifters to swipe items from stores like Sephora, then resell them on Amazon. It’s a growing issue in retail — though it’s still hard to gauge just how much organized retail crime cuts into profits. [Read]

Current Bitcoin rally is minting 1.5K “millionaire wallets” daily: These anonymous digital addresses store bitcoin — making it hard to tell if they belong to individuals or larger entities. Still, the 2021 bitcoin bull run was even more lucrative, creating 4K millionaire wallets a day. [Read]

Business & Wealth

The Oscars earn best ratings since 2020: The telecast hit 19.5M viewers, up ~4% over last year and the third-straight year of viewership growth. But, despite several box office smashes among the nominees, viewership in the key 18-49 year-old demographic was down 5%. [Read]

Airbnb ($ABNB) to ban indoor security cameras in its listed properties: Consultations with Airbnb made one thing clear: the cameras were a privacy nightmare, especially as technology allows for smaller, more discreet cameras. Hosts will also need to notify guests of all outdoor cameras. [Read]

Boeing ($BA) whistleblower found dead of self-inflicted gunshot wound: John Barnett had worked at Boeing for 32 years and was set to give evidence that Boeing “deliberately” assembled their planes with substandard parts. He also claimed up to 25% of Boeing’s oxygen masks wouldn’t work in an emergency. [Read]

*Thanks to our sponsors for keeping the newsletter free.

PARTNERED WITH STONK MADNESS

WallStreetBets Trader Who Turned $35,000 into $8 Million Launches First-Ever Stonk Madness Tournament

And the grand prize is a Lamborghini Huracan (if you select a flawless bracket).

It’s free to play and all you have to do is select your bracket from 64 stocks. For every correct pick that advances to the next round, you’ll earn points and the top 20 bracket-pickers will receive prizes.

Here’s how it works:

• Each day, two stocks will go head to head and the one that gains more by the market close will progress to the next round.

• Players have until March 18 to set up their bracket — and the tournament runs from March 19 to April 5.

Join the tournament (5-days left to set your bracket)

DIGIT OF THE DAY

US Inflation Rises 3.2% in February, Dimming Hopes For Fed Rate Cuts

Warm breezes are back, and so is hotter inflation data, according to the recent Consumer Price Index (CPI) report. The Labor Department reveals that consumer prices climbed 3.2% from Feb. 2023 — surpassing the 3.1% median estimate. And it seems like inflation isn’t cooling off anytime soon.

• The main drivers behind the monthly inflation jump were higher gasoline and shelter costs, which accounted for over 60% of the overall increase. Prices for used cars, air travel, and clothing also contributed to the uptick in inflation.

• The Core CPI, which excludes volatile energy and food costs, rose 0.4% from January, mainly due to rising gasoline prices — marking a 3.8% YoY increase.

Retail is thriving: Despite concerns about a potential recession voiced by JPMorgan Chase CEO Jamie Dimon, retail is on the rise. The CNBC/National Retail Federation (NRF) Retail Monitor indicates a 1.06% uptick in retail sales, excluding autos and gas, for February — a reversal from January's 0.8% decline. NRF President Matt Shay notes, “While the future direction of interest rates and inflation remains uncertain, it’s clear that a strong job market and increases in real wages are continuing to support spending” (CNBC).