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Investing Specialists

Money For Nothing? This Stock Pick Makes It Possible

An inefficient market serves up a (near) freebie in this spin-off.

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A version of this article ran inMorningstar Opportunistic Investoron June 18. We subsequently purchased Myriad Pharmaceuticals (MYRX) for about $4.50 per share. We think the stock is still cheap today.

We talk about spin-offs, an often-overlooked and potentially very lucrative corner of the investing world, regularly in our newsletter, Morningstar Opportunistic Investor. For those unfamiliar with the topic, a spin-off is basically a piece of a larger company that is "carved off" and becomes independent. Often, these are small and hard to analyze, creating all sorts of investment opportunities.

One such opportunity occurred on June 15, when Myriad Genetics (MYGN), a company specializing in gene-based cancer diagnostics, spun off its uninspiring pharmaceuticals division, Myriad Pharmaceuticals (MYRX). Normally, we wouldn't have cared. The pharma division, which is essentially a speculative biotech, has immaterial revenues and no products in Phase III development, and it is burning cash. As a result, we didn't pay much attention to this deal during the last few months. However, we believe the dynamics of the spin-off have created a very compelling opportunity.

Michael Tian does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.