Spin purgatory: How DuPont and Honeywell shares have battled ahead of their splits
For years, an unsettling pattern has cast a cloud over Wall Street. Companies with spinoff plans often see their stocks lag in the runup to the completed deals. In investment circles, the phenomenon is known as spin purgatory. And, the CNBC Investing Club’s 29-stock portfolio has not been immune to this. Take Club stock DuPont , it has had an overall lackluster performance since the specialty chemicals giant unveiled plans nearly one year ago to split into three separately-traded companies — electronics and water, with the new DuPont keeping the health care and mobility portfolios. While DuPont initially rose following the May 22, 2024 announcement , investor enthusiasm soon waned, and the stock ultimately flatlined in the months that followed. While making a run to multiyear highs back in September amid strength in the materials sector, shares again flattened. Dupont then modified its spin plan in January, deciding to keep water with the remaining company assets and only spin off electronics. From its May 2024 spinoff news through Tuesday’s close, DuPont was down 16%. That decline has been exacerbated by the selling after President Donald Trump unveiled “reciprocal” tariffs after the market closed on April 2. DuPont shares, however, were still down since May 2024 even before the president’s announcement. Another example of spin purgatory is fellow Club name Honeywell . The stock jumped on Oct. 8, 2024, after management announced their intent to spin off its advanced materials business. Shares surged again back in November when activist investor Elliott Management called for a further breakup of the company into aerospace and automation. Honeywell shares then seesawed for months, however, until the company officially announced on Feb. 6 its intentions to split into three publicly-traded entities. The stock dropped more than 5% that session in a sell-the-news event. That’s when traders who purchased shares ahead of a forthcoming announcement offload them once the official news comes. Since the October 2024 advanced materials spinoff news to Tuesday’s close, Honeywell stock was up less than 1%. Investors have largely been on the sidelines until these transactions are completed. Again, the increase since the first spin news would not be that much better as of the April 2 close, before the market tanked on Trump’s tariffs. It seems like it would be natural to expect stocks like these to rise ahead of potential key catalysts. Instead, however, investors largely tend to stay on the sidelines during spins — or worse, sell their shares — believing that the good news is already priced in. So, how are members supposed to react to the spin purgatory? DD YTD mountain DuPont YTD In the case of DuPont, the Club bought more shares on April 1 as the stock dipped. We thought the selloff was overblown and wanted to capitalize on these levels ahead of the company’s electronics business spinoff, which is scheduled for Nov. 1. We believe the spin will enable DuPont to fetch a higher multiple in the market, helping the stock narrow its discount to its sum of the parts. We were not concerned by the January decision to keep water and viewed the move as beneficial to the remaining company. Looking ahead, DuPont is set to release its first-quarter earnings on Friday morning. Investors will be looking for updates from management on the spin-off plan as well as what higher tariffs mean for customer demand across industries. DuPont’s China business makes up around a fifth of the company’s overall sales. Earlier this month, Wall Street analysts offered an upbeat view on DuPont ahead of the quarterly release, with KeyBanc upgrading the stock to a buy-equivalent rating. In an April 13 research note, the analysts described DuPont as a “high-quality name” that can grow its earnings at a percentage rate of mid to high single digits despite a murky macro environment. “DD has a strong balance sheet that should help it withstand a possible downturn in the economy. We consider DD’s electronics and water businesses to be world-class secular growth franchises that rarely trade at such a discount,” the analysts wrote. “While DD’s ~20% sales exposure to China is a risk, we believe the current valuation more than reflects this concern.” HON YTD mountain Honeywell YTD As for Honeywell, the stock’s muted performance is to be expected as well. Spin purgatory doesn’t mean that there isn’t more value to be created once these divestitures are complete. We’ve continued to stay optimistic about Honeywell’s turnaround story — as seen in our March 5 buy on weakness. We were further encouraged by the company’s better-than-expected quarterly earnings report on Tuesday when management made clear that it’s still all systems go on its break-up plan. During the conference call, CEO Vimal Kapur said that Honeywell’s board determined that a tax-free spin-off of Honeywell Aerospace is the most efficient way to separate the remaining company. There was no change to the timeline of completing the spin in the second half of 2026. We’ve long urged the company to spin off this division so that its crown jewel aerospace business will be more appropriately valued by investors. Kapur added that Honeywell’s advanced material business is on track to be separated in either the fourth quarter of 2024 or the first quarter of next year. “When Honeywell talks, they have at times not been as bullish as I would’ve liked, but they do have a better story this time. Let’s give them that,” Jim said during Tuesday’s Morning Meeting. (Jim Cramer’s Charitable Trust is long DD, HON. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
A person walks past the New York Stock Exchange at Wall Street in New York on Feb. 3, 2025.
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For years, an unsettling pattern has cast a cloud over Wall Street. Companies with spinoff plans often see their stocks lag in the runup to the completed deals.