In this article, we will take a look at the 10 Best Spin Off Stocks to Buy According to Hedge Funds.
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.
With that in mind, we will now look at some of the best spinoff stocks to buy according to hedge funds.
Photo by Anna Nekrashevich on Pexels
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).
10. Vontier Corporation (NYSE:VNT)
Number of Hedge Fund Holders: 24
Vontier Corporation (NYSE:VNT), a Fortive Corporation spinoff, is a technology company that manufactures and distributes automotive repair equipment, as well as equipment and software for fueling services and electric vehicle charging. The company operates in three segments: Mobility Technologies, Repair Solutions, and Environmental and Fueling Solutions.
Back in December, Wolfe Research raised Vontier Corporation’s (NYSE:VNT) stock rating from Peer Perform to Outperform, with a price target of $48. Although Vontier has struggled with sales growth, the firm anticipates an inflection point in the second quarter of 2025. Wolfe also stated that Vontier is well-positioned in what it calls a “Trump II world view.” This indicates that the company’s growth prospects are positive in the present political and economic environment.
Vontier Corporation (NYSE:VNT) had a good end to the year, with core growth of 3.5% in Q4 2024 and an organic booking increase of 9%, exceeding the midpoint forecast for both top-line and bottom-line performance. The Environmental & Fueling Solutions division performed exceptionally well, with approximately 11% core growth in Q4.
9. Crane NXT, Co. (NYSE:CXT)
Number of Hedge Fund Holders: 29
Crane NXT, Co. (NYSE:CXT) specializes in offering high-security technology for cash and electronic payment transactions, as well as automation solutions. In April 2023, Crane Company broke off its payment and merchandising technology division, giving rise to the new company.
On February 14, Baird analysts raised their price target for Crane NXT, Co. (NYSE:CXT) shares to $85, up from $76, while keeping an Outperform rating. The analysts provided insight into the company’s prospects, noting that, while there are many variables to consider for 2025, including soft first-quarter guidance due to the timing of the Consumer Price Index and a pause in currency production for equipment upgrades, full-year expectations for 2025 remain positive.
8. 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)
7. Kyndryl Holdings, Inc. (NYSE:KD)
Number of Hedge Fund Holders: 33
Kyndryl Holdings, Inc. (NYSE:KD) offers IT infrastructure services, including core enterprise and zCloud services, digital workplace services, network and edge services, cloud services, and others. In 2021, the firm broke off from IBM’s infrastructure services business.
Scotiabank analyst Divya Goyal raised the price objective for Kyndryl Holdings, Inc. (NYSE:KD) shares from $35 to $45, while keeping a Sector Outperform rating. This revision follows Kyndryl’s report of another strong quarter, which exceeded market expectations, notably in terms of earnings. The company’s excellent implementation of its strategic strategy was identified as a significant driver of its success. Over the previous 12 months, the firm made $15.11 billion in revenue, with a gross profit margin of 20.24%. Kyndryl Consult, a notable growth driver, posted a 26% year-over-year revenue gain in the third quarter. The firm also made $300 million in sales from cloud hyperscaler relationships. Looking ahead, Kyndryl Holdings, Inc. (NYSE:KD) estimates a 2% constant-currency sales increase in the fourth quarter.
6. Madison Square Garden Entertainment Corp. (NYSE:MSGE)
Number of Hedge Fund Holders: 35
Madison Square Garden Entertainment Corp. (NYSE:MSGE), a spinoff of Sphere Entertainment Co., is a live entertainment firm that produces concerts and show event entertainment experiences at well-known venues such as Radio City Music Hall and Madison Square Garden.
Guggenheim analysts maintained their positive outlook on Madison Square Garden Entertainment Corp. (NYSE:MSGE), reaffirming their Buy rating and $48 price target. Despite recent headwinds on the stock’s performance, the firm has selected Madison Square Garden Entertainment as its Best Idea for the calendar year 2025. Guggenheim analysts believe MSGE will still generate near double-digit growth in adjusted operating income (AOI) for 2025.
Ariel Fund stated the following regarding Madison Square Garden Entertainment Corp. (NYSE:MSGE) in its Q4 2024 investor letter:
“Lastly, Madison Square Garden Entertainment Corp. (NYSE:MSGE) underperformed in the quarter. Despite the delivery of strong earnings results, shares traded lower following a reduction to fiscal 2025 adjusted operating income guidance. The revision was driven by unique circumstances surrounding concert tour cancellations and higher costs associated with bringing sponsorship sales in-house. Nonetheless, with marquee assets such as New York’s Madison Square Garden, Radio City Music Hall, Beacon Theatre and The Chicago Theater, we believe MSGE is well positioned to capitalize on strong demand for live entertainment. Additionally, new sales and renewal activity in the company’s hospitality business remains robust. MSGE recently announced multi-year sponsorship deals with Lenovo, its subsidiary Motorola Mobility, the Department of Culture and Tourism-Abu Dhabi, as well as a multi-year extension of its sponsorship deal with Verizon. In our view, MSGE’s portfolio generates stable cash flow that should enable further deleveraging. At current levels, the company is trading at a significant discount to our estimate of private market value.”
5. Vestis Corporation (NYSE:VSTS)
Number of Hedge Fund Holders: 42
In 2023, Aramark broke out its Aramark Uniform Services division to become a new independent, publicly listed company that was eventually called Vestis. Vestis Corporation (NYSE:VSTS) is a provider of rental uniforms and workplace supplies to the automotive, food, industrial, healthcare, and cleanroom industries.
Vestis Corporation (NYSE:VSTS) recently revealed its first quarter financial results for 2025. The company announced revenues and operating income of $684 million and $30 million, respectively, representing a 2% sequential increase over the fourth quarter of 2024, while operating margin stood steady at 4.4%. Adjusted EBITDA for the quarter came in at $81 million, a 0.9% rise over the previous quarter, with the adjusted EBITDA margin slightly improving. Vestis also voluntarily prepaid $20 million in term loan debt as part of a strategic balance-sheet strengthening initiative.
4. Veralto Corporation (NYSE:VLTO)
Number of Hedge Fund Holders: 43
Veralto Corporation (NYSE:VLTO) provides water analytics, water treatment, marking and coding, packaging, and color services. Operating via two segments: Water Quality (WQ) and Product Quality & Innovation (PQI), the company went public on October 2, 2023, following its separation from Danaher Corporation.
Veralto’s fourth quarter sales increased by 4.4% to $1,345 million, with non-GAAP core sales expanding by 4.6%. In addition, the company’s operating profit margin was 22.9%, with non-GAAP adjusted operating profit margin at 23.8%.
Veralto Corporation (NYSE:VLTO) expects non-GAAP core revenues to rise in the low- to mid-single digits year-over-year in the first quarter of 2025, with an adjusted operating profit margin of 24.0% to 24.5% and adjusted diluted EPS ranging from $0.84 to $0.88. For the full year 2025, the company expects non-GAAP core revenues to increase in the low to mid-single digits year-over-year, while adjusted operating profit margins would rise by 25 to 50 basis points.
3. Kenvue Inc. (NYSE:KVUE)
Number of Hedge Fund Holders: 46
Kenvue Inc. (NYSE:KVUE) is a global consumer health company that offers a wide variety of goods to improve daily health and well-being. Its product line ranges from over-the-counter pharmaceuticals, pain relievers, allergy treatments, as well as skin health and cosmetic items. Kenvue Inc. (NYSE:KVUE) became an independent company when Johnson & Johnson broke out its consumer health division in August 2023.
On February 7, Jefferies analyst Keith Devas reduced the price objective for Kenvue Inc. (NYSE:KVUE) shares to $26 from $27, while maintaining a Buy rating on the company. Devas emphasized that Kenvue is beginning 2025 with a solid plan targeted at enhancing its performance. Despite recording a less-than-stellar fourth quarter and a second-half-weighted forecast for 2025, the analyst stated the importance of the company’s ongoing transformation, which is now in its second year. To that end, Kenvue has excellent gross profit margins of 58% and an annual sales of $15.46 billion.
2. Warner Bros. Discovery, Inc. (NASDAQ:WBD)
Number of Hedge Fund Holders: 49
Warner Bros. Discovery Inc. (NASDAQ:WBD) is a global entertainment and media corporation formed by the merger of WarnerMedia and Discovery, Inc. in April 2022. The corporation owns several important brands and products, including Discovery Channel, Max, Discovery+, and CNN, among others.
Warner Bros. Discovery Inc. (NASDAQ:WBD) stated back in December that it will separate its operations into two major divisions: “Global Linear Networks” and “Streaming & Studios.” This reorganization intends to boost strategic flexibility and provide new opportunities for future growth.
Warner Bros. Discovery Inc. (NASDAQ:WBD) is set to release its fiscal Q4 2024 earnings on February 27. The company is predicted to have a profit of $0.11 per share, up 168.8% from the previous year’s loss of $0.16. This is significant since only one of the previous four quarters did the company meet consensus estimates.
1. GE HealthCare Technologies Inc. (NASDAQ:GEHC)
Number of Hedge Fund Holders: 50
GE Healthcare Technologies Inc. (NASDAQ:GEHC) is a healthcare firm that creates products and services for diagnosing, treating, and monitoring patients. Previously a part of General Electric, GE Healthcare spun out and began trading as an independent company on January 4, 2023.
On January 8, Jefferies analysts recently raised GE HealthCare Technologies Inc. (NASDAQ:GEHC)’s rating from Hold to Buy, citing a more bullish outlook for the firm. The analysts emphasized the company’s ability to acquire market share in diagnostic imaging and prenatal diagnostics, which they regarded as increasing and under-modeled for future development.
On January 28, GE HealthCare Technologies Inc. (NASDAQ:GEHC) revealed that it had acquired FDA 510(k) approval for its revised Voluson Expert Series ultrasound systems which use sophisticated imaging and specific probes to help women’s healthcare providers make better diagnostic and treatment decisions.
Oakmark Fund stated the following regarding GE HealthCare Technologies Inc. (NASDAQ:GEHC) in its Q4 2024 investor letter:
“GE HealthCare Technologies Inc. (NASDAQ:GEHC) is a leading global medical technology company that was spun off from General Electric in January 2023. As a standalone company, we expect GE HealthCare to benefit from increased focus, better aligned management and incentives, and an improved corporate culture. We believe these changes will help drive higher margins and organic growth. In addition, we think GE HealthCare is well-positioned to capitalize on technology trends as a greater portion of the value proposition comes from AI-enabled software and a shift toward precision care. A lack of appreciation for the company’s self-help potential coupled with short-term concerns around weak demand in China provided us with the opportunity to purchase shares at a low valuation relative to other high-quality medical technology companies and at the lowest price relative to the S&P 500 since the IPO.”
While we acknowledge the potential of GEHC, 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 GEHC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
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