HOW INVESTORS CAN PUT A FRESH SPIN ON PROFITS

When a big company splits off some operations into a freestanding
corporation, the shares of the new enterprise typically stagnate or
fall for three to six months. After that, however, the stocks of
these so-called spin-offs often outperform the market over the next
three years, according to a recent study by the Smeal College of
Business at Pennsylvania State University.
''Once managers go from being division heads to top executives of
their own businesses, performance frequently improves,'' says finance
professor J. Randall Woolridge, one of the study's authors. Here are
two recent spin-offs that analysts like:
-- Fisher-Price (NYSE) $25.75). After owning Fisher-Price -- the
fourth largest toy company in the U.S., with estimated 1991 sales of
$650 million -- for 21 years, Quaker Oats let it go at $23 a share in
July. Known for solidly made, classic toys for preschoolers, Fisher
posted its first loss in 56 years for the fiscal year that ended June
1990, after branching out into toys designed for older children,
including makeup kits and racing car sets. Since that time, the
company has jettisoned those unsuccessful products and focused on its
old reliables, such as the Bubble Mower, Corn Popper and Snap Lock
Beads. With a price/earnings ratio of 17.8 times projected 1992
profits, Fisher-Price looks a little expensive now, according to
analyst Rick Wise at Bear Stearns. But Wise, who thinks that the
stock could reach $36 by 1994, recommends buying aggressively if the
shares dip below $20.
-- Pet (NYSE, $17.50). The maker of Pet evaporated milk and other
packaged foods, with annual sales of $1.9 billion, was launched in
April at $15.75 a share by Whitman, a conglomerate. Old El Paso
Mexican foods (the leader in its market) and Progresso canned soups
(No. 2 in its market) together account for nearly a third of the new
company's revenues. Furthermore, sales in both the Mexican food and
ready-to-serve soup markets are growing at 7% to 9% a year, says
First Boston analyst Eric Larson. The growth in those areas could
help fuel 15% annual earnings increases for Pet through 1994. As a
result, he believes the stock could rise to $22 within 12 months.