TMFDeej (99.47)

Special Situation Investing News - 8/8/2012

August 08, 2012 – Comments (6) | RELATED TICKERS: IRM , BIP , CVS

Here's the birthday edition of the Special Situation Investing News.  Whew, 38 shots this year.  This is going to be a tough one :).  I wasn't going to log-in this evening, but there was so much interesting news out there today that I just couldn't resist:

1)   It looks like John Malone is up to his old tricks again.  Liberty Media announced that it plans to spin off Starz.  He sure is an interesting fellow to follow.  He has done more spin-offs than probably any single person out there.  I wonder if anyone has actually tracked the performance of all of these transactions.  It would be interesting to see if they actually created value for shareholders or just moved the chairs around.  The closest comp that I can think of off of the top of my head to this is probably Cablevision's (CVC) recent spin-off of AMC (AMCX), which really hasn't done much yet.  The theory is that if Starz is spun-off it would make an attractive buy-out candidate.

Liberty Media to Split Off Starz

http://dealbook.nytimes.com/2012/08/08/liberty-media-to-split-off-starz/?nl=business&emc=edit_dlbkpm_20120808

2)   Here's a great article from right here in CAPS about Iron Mountain's (IRM) planned conversion into a REIT.  Kudos steprightup on the excellent post.  I went long IRM here in CAPS back in June when the news that it might convert into a REIT initially broke.  Thus far there hasn't been any returns to speak of.  I realize that there's more to IRM than just paper documents, but every time I here the company's name I can't help but think of the slogan of Dunder Mifflin from the Office fame..."Limitless Paper in a Paperless World."  HA.

Iron Mountain REIT Conversion Returns Value 

http://caps.fool.com/Blogs/iron-mountain-reit-conversion/753875 

3)  Here's a special situation stock that absolutely exploded to the upside today.  Dean Foods (DF) announced stellar quarterly results and that it plans to spin-off its WhiteWave organic food division.  This sent the stock up 40%!  I wonder if there's any room left for it to run.

Dean Foods to spin off organics unit via IPO 

http://www.marketwatch.com/story/dean-foods-to-spin-off-organics-unit-via-ipo-2012-08-08

4)   Back in April 2012 I went long CVS in CAPS and in real life for the following reasons:

My investment strategy now involves finding cheap, dividend-paying stocks that have some sort of free embedded call option that could act as a catalyst for significant earnings improvement down the road.  

While its dividend isn't as high as I normally like (around 1%), CVS is much cheaper than its main competitors. Looking at the stock at a simplistic level and comparing its P/E ratio to its main competitors we see that CVS currently trades at around 14.4 times its real trailing earnings (not some analyst's guess of how it will do in the future). That compares very favorably to its number one competitor in the pharmacy segment, Walgreen which trades at around 17 times trailing earnings (I'm ignoring the mess that is Rite Aid).  

The great thing about CVS is that it's not just a pharmacy, it also engages in pharmacy benefit management (PBM) through its Caremark division. PMBs are hot, hot, hot. Take a look at companies like Express Scripts Inc. (ESRX), which trades at over 33 times trailing earnings, or Catalyst Health Solutions (CHSI), which trades at 30 times.  

Granted, Caremark hasn't exactly been knocking the cover off the ball to use a baseball analogy (heck it is spring after all), but its business seems to have stabilized. Anyone who uses Caremark now has made a conscious decision to do so because their contract likely had to be renewed so we are unlikely to see any mass client defections in the near future. Besides Caremark has been left for dead by investors. It's super cheap compared to its competitors.  

Now onto the good part, the caralysts. They include the following:  

- The likely influx of new customers created by the expansion of healthcare that the government recently passed.  

- Increased profitability as a result of the coming wave of generic drug introductions, which are more profitable for pharmacies and PBMs than branded medications.  

- A demographic tailwind from aging customers who will need more medicine.  So there you have it. A cheap, dividend-paying stock, with specific event driven catalysts that could significantly improve the company's results, and in turn its stock price in the years ahead. The majority of my personal portfolio now consists of companies like this. If I find some time, I'll write up a short blurb on another one. 

After a rough start this has been a fairly successful investment, returning 27% versus the S&P 500's 16%...10% or so outperformance and counting.  Today CVS reported excellent quarterly results and it was upgraded by an analyst who believes that it will be able to retain a large number of the customers who switched to it from Walgreens during the latter's dispute with Express Scripts (an unexpected positive for CVS).

Analyst upgrades CVS Caremark

http://finance.yahoo.com/news/ahead-bell-analyst-upgrades-cvs-124732143.html 

5)  You win some, you lose some.  While I did well with CVS, I decided to sell real-life holding Rose Rock Midstream (RRMS) after reading about potential overcapacity of oil storage tanks at Cushing OK.  Hmmm, the unit that was spun-off from SemGroup (SEMG) has risen 40%+ since then and it reported excellent quarterly results again today.

Rose Rock Midstream, L.P. Reports Second Quarter 2012 Results

http://finance.yahoo.com/news/rose-rock-midstream-l-p-120501159.html

6)  Here's one that I have been keeping an eye on for a while.  Cincinnati Bell (CBB) has finally officially filed for to perform an IPO on its data center subsidiary CyrusOne...as a REIT (bonus).

I am very interested in this one, depending upon what the pricing is like.

CyrusOne Files for IPO as REIT

http://www.datacenterknowledge.com/archives/2012/08/08/cyrusone-files-for-ipo/ 

7)   Real-life and CAPS holding Brookfield Infrastructure Partners (BIP) has absolutely crushed it since it was spun-off from Brookfield Asset Management (BAM) back in 2010.  I'm up nearly 120% on the investment.  My only regret is selling a small portion of it off a while ago.  BIP recently announced some major acquisitions, including a Chilean Toll Road and a UK utility:

Brookfield Infrastructure: 4.4% Dividend Yield And Unique, High-Quality Infrastructure Assets

http://seekingalpha.com/article/772851-brookfield-infrastructure-4-4-dividend-yield-and-unique-high-quality-infrastructure-assets

Whew, that's all the time I have for now.  I told you that there has been a ton of interesting news out there.  Please share any that you've seen as well.

Thanks for reading everyone.  Have a great evening.

Deej