Several ASX stocks have been trying to unlock value by divesting assets and we are likely to see more. The question is who’re next in line to try to trigger a share price rally.
The Boral Limited (ASX: BLD) is one of the most recent and obvious examples. Management announced the sale of half of USG Boral for around $1.4 billion as it put its US businesses on the auction block.
Citigroup reckons the US assets could fetch as much as $2 billion, reported the Australian Financial Review.
Divestments create value for ASX stocks
Divestmenting is usually a good way to score a re-rating for ASX stocks, although that has yet to play out for Boral.
However, most analysts view potential divestments of underperforming assets in a positive light. The Link Administration Holdings Ltd (ASX: LNK) share price is one example, while the Deterra Royalties Ord Shs (ASX: DRR) spin-off from Iluka Resources Limited (ASX: ILU) is another.
There are plenty of other examples where spin-offs and divestments have created extra shareholder value, including for the Coles Group Ltd (ASX: COL) share price and Wesfarmers Ltd (ASX: WES) share price.
Divorce is better than marriage
In fact, history has shown that a divestment strategy is a more reliable way of generating superior returns for ASX stock than mergers and acquisitions (M&A).
This is why some experts are trying to predict which S&P/ASX 200 Index (Index:^AXJO) stock could be next to unlock value.
AMP share price on watch list
It appears there are a number of divestment ASX stock candidates. Bell Potter’s high-profile trader Richard Coppleson ventured a guess and the AMP Limited (ASX: AMP) share price is on the list.
It’s no secret that the embattled wealth manager is looking to shed more assets after selling its life insurance business in July this year. Shareholders were rewarded with a 10-cents a share fully franked dividend as a result.
The AMP share price has since slipped back to near record lows. I think it’s looking good value despite the risks of repositioning the business as there are multiple levers management could pull.
Not only could management trigger a rally with more asset sales, I suspect potential suitors are running the ruler over the group.
Other ASX stocks looking to cut and run
Among the small caps, the AMA Group Ltd (ASX: AMA) share price looks to be a possible candidate too. The panel beating and auto services group is struggling to return to its glory days and streamlining its divisions might just do the trick.
Where to invest $1,000 right now
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.
*Returns as of June 30th
Brendon Lau owns shares of AMP Limited and Iluka Resources Ltd. Connect with me on Twitter @brenlau.
The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Link Administration Holdings Ltd. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Wesfarmers Limited. The Motley Fool Australia has recommended Link Administration Holdings Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
- Broker lists the best ASX stocks to own for an up to 30% gain in 2021 – January 18, 2021 11:48am
- These ASX energy stocks just got zapped by a broker downgrade – January 18, 2021 11:11am
- ASX banks to steal the dividend crown from mining stocks by next year – January 17, 2021 8:05am