This article is part of our Rising Star Portfolios 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. In my Special Situations portfolio, I'm focused on just such opportunities. Below are three plays that I'm watching for my portfolio.

Frontier Communications (NYSE: FTR) 
About six months ago, Frontier purchased a huge chunk of Verizon's wireline operations, which has boosted revenue and cash flow. While Frontier and competitors CenturyLink (NYSE: CTL) and Windstream (Nasdaq: WIN) have shown good performance in 2010, I still think Frontier has room to run. It pays out the fattest dividend of that trio, and Frontier's EBITDA margins are comparable to those of Windstream, at around 50%, with both trailing CenturyLink's 54%.

These companies should be valued on their dividends. Frontier now offers an 8% yield, compared to Windstream's 7.4% and CenturyLink's 6.5%. If those yields change as investors' risk appetite is whetted, we could see a convergence of Frontier and CenturyLink. And if Frontier realizes the cost synergies it's promised, then even better. That could increase the company's ability to return the dividend back to its $1-per-share level, which would certainly give the stock a kick. Plus, there's the possibility of consolidation in this industry, which could push prices higher.

Marathon Oil (NYSE: MRO)
Just this week, Marathon announced it would spin off its refining business, which will be called Marathon Petroleum. Marathon Petroleum would be the fifth-largest U.S. refiner and would have a portfolio of assets focused mainly on the Midwest, Gulf Coast, and Southeast of the U.S.

Meanwhile, the parent company will remain focused on exploration and production. So the company's fortunes will be more closely tied to the price of oil. If you think oil prices have room to run as the global economy heats up and the dollar weakens, then Marathon Oil might be a great opportunity as it sheds the downstream business, which is generally a less attractive business.

DryShips (Nasdaq: DRYS)
Late last month, DryShips announced that it was acquiring $770 million in new tankers. The tankers will become part of a spinoff or an IPO sometime in 2011, according to the company.

Said Chairman and CEO George Economou: "We are positioning the Company to be a significant player in the tanker market with a sizable fleet and a balance sheet that can withstand the cyclicality of the tanker market."

Apparently, spinoffs among the shippers are hot. DryShips peer Diana Shipping (NYSE: DSX) is undertaking a similar move, distributing shares in its Diana Containership unit to current shareholders, who will get 0.0325 shares of the new company for each share of the parent they hold. After the transaction, public shareholders will own 44% of the new company.

These are a few of the companies I'm looking at as part of my Special Situations portfolio. Join me on my discussion board here.