Value investing guru Mario Gabelli says companies that spin off parts of their businesses are a prime area to look for good investments.
Gabelli tells CNBC that he likes investing in companies that have a history of splitting off successful businesses, or which could split off businesses. Then he invests in both firms. “How do you take a company and take its capital and move it to its highest rate of return? Split-ups are an example of that,” he says. “We look at finding the company that was spun off and say, is this attractive?”
Gabelli offers examples of some prominent spin-offs he’s profited from, including Fortune Brands and Xylem. And he talks about one company he’s hoping will spin-off part of its business: PepsiCo.