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Why I Blog & The Special Situation Investing News for 8/13/2012

Recs

20

August 13, 2012 – Comments (5) | RELATED TICKERS: IR , RDI , SHAW.DL

Before diving right into today's Special Situation News, I thought that I'd share a few thoughts on why I blog, perhaps more for my own benefit than anyone else's.  First and foremost, blogging encourages me to look for and research interesting investment ideas. Without it I probably would not have the motivation to look as hard as I currently do for new, cool special situation ideas.  Furthermore, writing about them and getting the occasional comment from others on them here in CAPS helps me to think about them more clearly, to see what I do and don't like about potential investments.

While my primary reason for blogging has remains mainly the same over the years, using it as a way to find and think about good investment ideas, I think that my secondary reasons for blogging have changed somewhat.  Years ago when I blogged, I wanted to rack up as many "Recs" and receive as much recognition as possible for my posts.  I would throw political cartoons and commentary up here because I knew that they would generate a ton of recs more than anything...though some of the cartoons were funny and it's always good to bring a little levity to one's and others' lives. 

Today, I really don't care nearly as much about how many "recs" I get.  Of course everyone likes to be recognized for their hard work and I absolutely appreciate every single rec that my fellow CAPS players give me.  Plus if I receive enough recs to have my post appear in the top five most recommended posts section instead of some political rant or non-investment related post all the better. 

However, I honestly believe that by sharing ideas with each other here in CAPS we can help improve each others' lives.  If I share an investment idea with someone here and they end up making money off it it that they can use to take care of their families, donate to charity, etc then I am absolutely thrilled.  I honestly enjoy helping others more than receiving the "glory" or recognition.  I'd love for the comments section of my blog posts to be a place where investors like myself and likely anyone who is reading this can come to share ideas with each other.  There's a lot of smart, talented people out there.  There's absolutely no reason why we can't come up with investment ideas that are as good as or better than the giant fancy pants hedge funds.  Our fellow CAPS player MegaShort has taken to sharing all sorts of great ideas here.

Anyhow, that's probably more mushy stuff than anyone wanted to read.  I suppose that I've changed over the years from being a more Gordon Gecko-like individual to hopefully a more giving person.  And now back to our regularly scheduled program, the news!

1)   Back in May I added Ingersoll-Rand (IR) to my CAPS portfolio in order to keep an eye on it after the famous activist investor Nelson Peltz bought a significant stake in the company with the theory that he might push for it to split up into several different companies, creating a special opportunity.   The stock hasn't done much since then, gaining 4% and change versus a 3% increase in the S&P 500, but change may be a comin'.

Today IR announced that Peltz has officially been added to its board of directors. This move might just put the company one step close to some spin-offs.  He already seems to have had some influence on the company, causing it to raise its dividend (hooray) and increase its buy-backs (meh).  Can you tell that I like dividends better than buybacks as a general investment philosophy :)?

This looks like a slam dunk investment opportunity that's right up my alley, a company that actually produces real "stuff," pays a dividend and has a relatively near term catalyst that could potentially unlock value.  The only think that keeps me from jumping into this one with both feet is the weakness of the European economy and IR's heavy reliance upon it.

Activist investor Peltz to join Ingersoll-Rand board

 

2)  And this my friends is what happens when Barron's writes a positive article about a small cap company. Yesterday I talked about a positive write-up that Barron's did on Reading International (RDI).  Today the stock was up 15% at one point and has settled in at up around 11.5% right now.  Here's what I said about RDI for anyone who may have missed it (it was in the comments section, not the main report):

Here's a new article about a stock that has been on my radar for quite some time.  I went long Reading Internetional (RDI) in CAPS on the premise that value of its real estate assets was understated on its books back in October 2010.  That's a long time to squeeze a 6% gain out of a stock...versus a 19.5% gain in the S&P 500.

This week's Barron's contains an interesting article about the company.  The following quote should be enough to pique a special situation investor's interest:

Capstone Equities, a New York real-estate concern, pegged Reading's value at between $12 and $14 a share in a May 15 letter to Reading's board of directors. That's more than double Reading's stated book value of $5.44 a share, and Friday's closing stock price of $5.07.

Popcorn and Property

 

3)  As some of you who have followed my posts may know, I am in the midst of a grand experiment of going long every single MLP IPO that I am aware of in CAPS under the premise that they outperform the market.  There's a new one coming out this week before the annual IPO vacation called Hi-Crush Partners (HCLP).  There is  A LOT not to like about this one, including the company's lack of operating history, how its main product certainly seems to me as though it would lend itself to commoditization and how it caters to an industry (fracking) that to say the least could face tremendous political pressure in the future.  Having said that, I'm sticking with my policy of giving the green thumb's up to MLP IPOs and will go long HCLP and its initial 9.5% yield when it is available here in CAPS.

Investing in Sand Before Kicking It

 

4)  This isn't a link to an article, but a merger arb situation that I noticed.  I usually do not play the merger arb game, it seems as though with all the hedge funds and cheap money out there today that these trades usually become way too crowded and the returns don't justify the risk.  Having said that, Chicago Bridge and Iron's (CBI) acquisition of Shaw Group (SHAW) is an interesting one.  I haven't looked too deeply into the specifics yet, but on the surface it appears as though CBI is paying $41/share in cash and an additional .12883 shares of CBI stock for each SHAW share.  SHAW is currently trading at $40.40.  The combined offer is currently $45.74 at today's CBI price.  So if this is correct and the deal does eventually go through you're anyone who buys SHAW today is looking at a 13.2% gain.  I'm sure that there's some regulatory risk which could either delay the deal lowering its annualized return or torpedo the thing entirely CBI's stock price could continue to erode, hurting a portion of the proceeds as well, but this is an interesting one.  I suspect that we're looking at an annualized return of around 20% when all is said and done...not too shabby.

 

5)  Here's a link to an interesting Bloomberg interview with one of my favorite investors to follow, Mario Gabelli.  I've gotten a number of profitable investment ideas from him over the years.  It's interesting, and refershing, to hear him talk about how he actively borrows ideas from other investors.  I know that I certainly do.  There's no bonus points for originality or difficulty in investing.

Mario Gabelli on Following Leaders Like Bill Ackman and John Malone

Well that's all the time that I have for now.  Thanks for reading everyone and have a fantastic day!

Deej

5 Comments – Post Your Own

#1) On August 13, 2012 at 11:32 PM, awallejr (79.51) wrote:

"If I share an investment idea with someone here and they end up making money off it it that they can use to take care of their families, donate to charity, etc then I am absolutely thrilled.  I honestly enjoy helping others more than receiving the "glory" or recognition."

That is pretty much my end game here.  I am blunt.  I am honest But I have no other agenda but to throw out suggestions to others simply for the love of the game.

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#2) On August 14, 2012 at 11:56 AM, XMFConnor (98.19) wrote:

TMDeej,

My own post on why Reading International may not be as good as some value guys think:  www.TheVariantView.com

 

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#3) On August 14, 2012 at 1:17 PM, Mega (99.97) wrote:

http://seekingalpha.com/article/805841-reasons-to-own-abbvie-after-abbott-splits-in-two

AbbVie doesn't seem like a great company name, but at least it's better than Mondelez.

XMFConnor, I liked your post.

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#4) On August 14, 2012 at 3:00 PM, TMFDeej (99.28) wrote:

Great stuff Connor.  Thanks for sharing.  Fortunately, I have been watching Reading from the sideline.  I don't like the cinema business and I haven't put enough research into whether the real estate assets are as undervalued as everyone says to put real money into it.  Many people love RDI, so it's refreshing to see an alternate view.

In my opinion, the coolest thing about RDI is that it is the reminants of the old Reading Raildoad of Monopoly fame.  Man I used to love that game.

Say is that your new blog?  If so, I'll have to bookmark it.

Deej

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#5) On August 15, 2012 at 12:50 AM, XMFConnor (98.19) wrote:

The real estate assets are extremely valuable and the stock is dirty cheap, but it is unclear when it will be realized making it much less attractive IMO

And yes, my new blog. Hoping to make it active with some of my top ideas.

Foolishly,

Connor 

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