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It's been a while since we've seen one of these. Here's two post-BK special situations.



January 02, 2013 – Comments (4) | RELATED TICKERS: DYN

What special situation investors doesn't love a good post-bankruptcy play?  I hadn't seen very many interesting ones in a while and then all of a sudden BOOM...I have found two in the past week.

The first is Dynegy (DYN).  DYN has been one seriously messed up company. With such solid assets, like new relatively clean power plants, one would think that the company would have done fairly well. Alas, the current weakness in power prices caused in large part by low natural gas prices have hurt DYN even more than most power producers. Combine that with some mismanagement, mix well and voila DYN was forced to file for bankruptcy.

The company recently emerged from BK as a much stronger company with a much cleaner balance sheet.

I have been considering playing the cleaner power companies on the thesis that they will benefit from the EPA's new clean air regulations more than their dirtier counterparts for some time now. Thank goodness I haven't because power company stocks have been hammered by the stock market. I still think that cleaner companies like DYN stand to benefit when the EPA regulations go into effect.

Time will tell. I am adding DYN to my CAPS portfolio today at $19.10/share. The idea for this trade came from the following interesting Barron's piece on the hedge fund Venor Capital Management.  Any article that has a paragraph like this in it is automatically going to suck me in:

"We think of ourselves as a special-situation investor within the credit space," says Bersh. "We look for asymmetric upside, meaning we feel there's little to no downside. We also look for hard-asset collateral that offers a margin of safety in the intrinsic value. In other words, we value the company knowing that we would be fine with owning those assets. And we look for a catalyst."

Recalibrating The Watt

The second post-bankruptcy play that I've come across in the past week was just brought to my attention by a friend here in CAPS, CROIC. It's Remy International (REMY), an auto parts manufacturer of mostly starters and alternators for OEMs and the aftermarket. The company also makes electric engines and locomotive parts. This former division of General Motors went independent, but was eventually forced to file for bankruptcy five years ago.

It reemerged from BK a couple of years ago but just listed itself on the NASDAQ in mid-December.

To bring things full circle, it is currently majority owned one of my former holdings Fidelity National Financial (FNF).

I just went over REMY's most recent earnings presentation. The year-over-year drop in revenue that it experienced is somewhat troubling, but if the numbers on Yahoo! Finance are right, then his is one cheap company:

Trailing P/E: 4.01

Price/Sales: .51

Price/Book: .56

Enterprise Value/EBITDA: 3.5

I am very intrigued by this one. Is anyone out there familiar with the company? If so, I'd love to hear your thoughts.

Wow, we're starting the year off with a bang today in the markets aren't we?  I'll take it.  I knew that they'd come to some sort agreement on the whole fiscal cliff issue.  We never got the dip in the markets that I thought might happen and would have taken advantage of, but that's fine.  At least I didn't sell and go 100% to cash in fear of what might happen like so many other macro-style investors said they had.  Those who did missed a nice pop on Friday and today.  I rode this one right through, just like a long-term investor probably should have.  If you like the stocks that you're in and have good reasons for owning them there's no reason to try to time the market, other than to buy on the occasional unwarranted dip should one arise.

Thanks for reading everyone.  Please keep the comments coming.  I've gotten some great ideas from there lately and I always give credit where credit is due :).  Let's crush the market this year.


4 Comments – Post Your Own

#1) On January 03, 2013 at 6:00 PM, constructive (99.96) wrote:

Did CAPS eat my comment?

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#2) On January 03, 2013 at 6:00 PM, constructive (99.96) wrote:

Yes, it did.

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#3) On January 03, 2013 at 6:13 PM, constructive (99.96) wrote:

Deej, I think you might find this idea interesting. Safeway (SWY) is planning a 20% IPO of its gift card and payment services subsidiary Blackhawk.

Since it's growing and has healthy margins, it will probably get a higher multiple than SWY, unlocking value for both parts. Safeway pays a good dividend and is in the middle of a huge buyback program.

It's very cheap on free cash flow, which is far in excess of earnings. I wouldn't want to own a grocery store long term, but this could be a very good trade.

Also written up on Corner of Berkshire and Fairfax.

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#4) On January 04, 2013 at 9:19 AM, TMFDeej (97.48) wrote:

Thanks for the idea Mega.  I remember hearing about this one a while ago but I forgot about it.  I'm staying far away from grocery stores, but the gift card business sounds interesting.  I'll definitely look into it.


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