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July 11, 2014 – Comments (9) | RELATED TICKERS: NCT , ENR , CORR

It's funny that everyone keeps talking about a market top and how we're due for a crash any day now.  Are we at a level in the stock market like the one that we were at after the financial Armageddon a couple of years ago when you could throw darts at a list of stocks and come out a big winner?  No.  Nor are we at a point in time like when was able to Warren Buffett leaf through stock reports and scoop up decent companies trading at one times earnings. I think that the fantastic quote that CAPS leader bbmaven put at the top of the page sums up my thoughts on the current market best: "[At some point], Hussman and Grantham will be vindicated, but they won't make enough to compensate for the opportunities lost while cowering on the sidelines." T Armistead"

I am being a little cautious right now and am not putting as much money to work as I have in the past, but to say that there's no decent investment opportunities out there is silly.  Granted, the headline of this post is a little sensationalist, but that's what gets the clicks ;).  I am absolutely amazed by the number of special situations that are out there lately.  Of course, I am actively looking for them more now than I have been at any time in my life, but I still think that there's more interesting special situations out there than I have ever seen.  Perhaps it has something to do with the increase in the number of activist investors convincing companies to do just the sort of things that I look for in an investment, spin off assets, convert into MLPs and REITs, etc...

Here's a few that have popped up on my radar lately:

 

Barron's Stock Alert column is excellent. I probably like it because it definitely has a propensity to talk about special situations. Today I came across an article on the upcoming Energizer (ENR) breakup there. It actually is right up my alley. I'm not sure why I haven't bought into ths one yet. I guess it looks a tad on the expensive side. Of course, I originally thought that when I purchased ENR only in CAPS and not in real life and ithas risen 70% since then :).

Energizer Could Charge Even Higher on Breakup

http://online.barrons.com/news/articles/SB50001424053111903684104580017313454796330?mod=BOL_latest_sa

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There's two new write-ups out there on Timken Steel (TMST). I obviously like the fact that the company is a spinoff and that its products seem to be specialized rather than commoditized, however it clearly has not been growing at all. It remains to be seen if it will in the future. To me, TMST seems like a solid company, trading at a reasonable valuation...not a "I have to buy this now, sort of investment."

TimkenSteel: Spinoff Opportunity In Niche Steel Company

http://seekingalpha.com/article/2300885-timkensteel-spinoff-opportunity-in-niche-steel-company?ifp=0

TimkenSteel: Trying To 'Steel' The Limelight, But Appears Fully Valued

http://seekingalpha.com/article/2300905-timkensteel-trying-to-steel-the-limelight-but-appears-fully-valued

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I have not purchase shares of Timken Steel or Energizer in real life yet, just in CAPS.  One stock that I have been purchasing is a company called Newcastle Investment Corp. (NCT).  This is a cool one. The following article is a little old so both of the spinoffs that are described in it have already happened, but the main value driver here is the conversion of a REIT run by Fortress Investment Group that was formerly focused on debt and CDOs which is now changing its focus to senior living healthcare REIT.

Aside from the media and mortgage servicing REIT spinoffs, this situation strikes me as being very similar to another investment that I currently own that has done pretty well so far, CorEnergy Infrastructure Trust (CORR). Both are companies that completely changed their focus and morphed into REITs. Neither move was appreciated by Mr. Market and they both sport huge yields.  NCT yields over 8% whensimilar REITs yield in the 5.5% range.  I strongly suspect that denta will shrink significantly at some point after thecompany's senior living spinoff.

My Best Idea For 2014: Newcastle Investment, An 'Aging' REIT

http://seekingalpha.com/article/1911021-my-best-idea-for-2014-newcastle-investment-an-aging-reitThis one is very interesting.

Here's a link to NewCastle's recent investor presentation on the spinoff:

http://ir.newcastleinv.com/Cache/1500061553.PDF?Y=&O=PDF&D=&FID=1500061553&T=&IID=4040318

While I originally purchased my position in Newcastle because it has a significantly undervalued senior living REIT that it is going to spinoff in the near future, the company's remaining asset, golf courses, may not be as bad as I originally thought. NewCastle management is in the midst of restructuring its golf assets in an attempt to return them to profitability.  This is actually a sector that may have a lot of interesting opportunities in it in the near future.  I came across a great New York Times article about investment funds that have been set up to purchase some of the plethora of distressed golf courses out there. It sounds like a very interesting opportunity. The article is a worthwhile read.

Investors Are Buying Troubled Golf Courses and Giving Them Makeovers

http://dealbook.nytimes.com/2014/07/07/investors-are-buying-troubled-golf-courses-and-giving-them-makeovers/?_php=true&_type=blogs&_php=true&_type=blogs&_php=true&_type=blogs&_r=2&

That's just a few of the cool ideas that I've come across lately.  I have 200 more of them in my CAPS portfolio here.  Will the markets eventually experience a correction?  Of course.  I plan on having some dry powder waiting for when it happens, but I certainly am not going to sit on the sidelines with my cash earning 0% interest waiting for that to happen when there's lots of interesting investment ideas out there.

Thanks for reading everyone.  Have a great weekend.  As always, please share your interesting ideas.

Jason

9 Comments – Post Your Own

#1) On July 11, 2014 at 10:47 AM, EnigmaDude (87.37) wrote:

Hmm, just read that NCT is now about to spinoff the senior housing business:

http://finance.yahoo.com/news/newcastle-announces-spin-off-senior-124500864.html

Not sure what that leaves for their "core" business. Golf courses?

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#2) On July 11, 2014 at 11:01 AM, boozalex (27.56) wrote:

jason,

Do you plan on selling the core NCT post spinoff?  Do you want to keep the spin-off? 

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#3) On July 11, 2014 at 11:34 AM, TMFDeej (99.30) wrote:

Hey guys.  Yes, NCT is going to spinoff the New Senior Investment Housing Group unit to shareholders.  That is definitely the main asset that I am looking to add.  I bought some NCT before the spin just in case the Senior Housing Company's stock soars right after the spin.  I doubt that it will, but you never know.

What's left with the old NCT ticker will be the golf courses and some legacy real estate debt, supposedly $543 million in estimated principal with $135 million collected in Q2 through mid-June.  That leaves just over $400 million in potential recovery value. 

Ideally the value of NCT will collapse after the senior housing spinoff to the point where it is no brainer cheap to load up on.  If that happens then we could have a big win on both ends of this trade.  If not, I'll have to see where it trades and decide what to do with the NCT stub that I'm left with.  I would like to add to the spunoff company after the transaction if the discount persists.

Jason

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#4) On July 11, 2014 at 12:43 PM, boozalex (27.56) wrote:

Have you looked at the spinoff of assets vs ENSG?  Why not just buy more of that?

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#5) On July 11, 2014 at 1:45 PM, TMFDeej (99.30) wrote:

I own both NCT and ENSG. The latter is more of a management arm that is poised for rapid growth than an undervalued income play. CTRE is a better comp for NCT and NCT is much cheaper right now.

jason 

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#6) On July 11, 2014 at 2:00 PM, boozalex (27.56) wrote:

Thanks Jason.  I need to go back and read upon ENSG.  Much more like NSAM then.

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#7) On July 14, 2014 at 7:08 PM, awallejr (81.40) wrote:

I own NCT in real life.  I even made it my pick in the 2011 Chimpcontest but CAPS never gives this stock credit for the spinoff.  It is a stock that I call one that keeps on giving.

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#8) On July 15, 2014 at 10:22 AM, TMFDeej (99.30) wrote:

Great call on NCT awallejr.  If the scoring is off on a stock that you have in your CAPS portfolio you can always contact them and let them know using the "Contact Us" link at the top.

Jason

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#9) On August 07, 2014 at 6:58 AM, Jamesd99 (< 20) wrote:

Questions to anyone? I own NCT ans NRZ they are both giong to have a reverse split. Is this good or bad and should I keep holding these companies? Thanks in advance and any info would be great.

James 

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