This article is part of our Rising Star portfolio series.
The field of special situations can be a happy hunting ground. As Joel Greenblatt details in his book You Can Be a Stock Market Genius, special-situation investing led him to 50% annualized returns for a decade. That type of return transforms a $1 investment into $52 in just 10 years.
Such special situations are created by transactions that transform the business -- spinoffs, reorganizations, and recapitalizations, to name a few. But the value created by such transactions often isn't reflected in financial statements, so agile investors can get a jump, and a good price, on these stocks before they appreciate to full value. Also, these situations can be complicated, but it's this transactional complexity that often creates value.
|
Situation |
Timeline |
|---|---|
|
Tesoro |
April 20, 2011 |
|
Tessera Technologies |
Unclear |
|
Sears Holdings |
Unclear |
Tesoro used an IPO to raise about $250 million for its logistics unit. The logistics unit owns pipelines, storage, and terminals, including a crude-oil-gathering system in the Bakken shale-Williston Basin area, eight refined products terminals, and five short-haul pipelines in Salt Lake City. The company planned to pay a 6.8% yield at its initial price midpoint of $20. With the recent move up in price, Tesoro Logistics should yield about 5.4%. Add Tesoro or Tesoro Logistics to your watchlist.
Tessera is considering whether it might spin off its imaging and optics business. The unit provides inexpensive but high-quality camera capabilities in consumer electronics and has been increasingly adding revenue to the business. The company hired GCA Savvian Advisors to advise on the best course of action, which could include a spinoff. Add Tessera to your watchlist.
Sears Holding has decided to spin off Orchard Supply Hardware, an 89-store chain in California. The company had just $8.7 million in earnings in 2010 and dropped to a loss in the latest quarter. The company will have about $340 million in debt when it is spun off. Add Sears to your watchlist.
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