By Nigam Arora & Dr. Natasha Arora
Signal(s) to enter, add, reduce, exit, hold or change.
GE Healthcare stock (GEHC) was bought at an average price of $56.30 not that long ago. It is trading at $77.24 as of this writing. There are nice profits in a short time.
Spinoffs Are Often Profitable
Spinoffs from large corporations are often profitable. Here are the reasons why spinoffs are often profitable:
- Top management gets totally focused on the unit that is spun off.
- The unit that gets spun off often gets more market opportunities as some companies who might not have done business with this unit previously due to conflicts with the prior parent corporation now become clients.
- The spun off unit often has more financial flexibility compared to when it was part of a big corporation.
- Top management is incentivized to run up the stock of the spinoff.
- It is easier for analysts to understand the business of the spinoff as it is simpler compared to the parent corporation. This often leads to buy recommendations.
Months ago, when General Electric (GE) decided that it was going to spin off its healthcare unit, The Arora Report had an eye on the spinoff to give a buy signal. When GE Healthcare started trading on a when issued basis, The Arora Report gave a buy signal on Dec. 30, 2022. Spinoffs often start trading on a when issued basis before the actual stock trading starts.
GE is known for its imaging solutions such as CT scanners, MRI scanners, mammography scanners, X-rays, ultrasound scanners, molecular scanners, and bone scanners.
It is a slow-growing solid business, but the attraction was that it was valued at a discount relative to its competitors.
The Reason To Take Partial Profits
The stock has run up very quickly. Now the discount has narrowed. Our very long term target that was given along with the buy zone was $88 – $110. The very long term target still remains the same, but due to the quick run-up, there is merit to taking partial profits right here. Also, consider raising the stop zone to $66.43 – $67.38 on the remaining position.
What To Do Now
Those in the stock may follow the parameters given above. Those not in the stock may consider waiting for a new signal.
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