5 Special Situations for Your Watchlist

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.

Cablevision announced that it would officially spin off its AMC Networks division on June 30 to shareholders of record on June 16. The newly spun-off company owns and operates the AMC, IFC, Sundance, and WE TV channels, and it began trading today under the symbol AMCXV. Cablevision shareholders receive one share of AMC Networks for every four shares of the parent they own. Add Cablevision to My Watchlist.

A couple months ago, CVR Energy conducted an IPO of shares in CVR Energy Partners, a publicly traded partnership that owns and operates a nitrogen fertilizer business in Kansas. The partnership is undertaking a two-year plant expansion that should increase its production of urea ammonium nitrate by 50% annually. The partnership expects to pay out a dividend of $1.92 per share, for a yield of nearly 9%. But the parent still owns about 70% of the partnership's shares and could still be underpriced. Add CVR Energy  or CVR Energy Partners to My Watchlist.

Forest Oil recently priced the IPO of Lone Pine Resources, but the number came in 38% below the initial estimates. Following the IPO, the parent still owns some 80% of Lone Pine and intends to distribute it to shareholders in about three months. With Lone Pine's market cap around $950 million, the market is valuing Forest Oil around $2.2 billion. Add Forest Oil  or Lone Pine to My Watchlist.

The Fortune Brands spinoff is still on track for later this year. Owners of the company will receive one share of Home & Security for every share of the parent. This is a stock that I'm following closely because other distillers have been showing interest in Fortune. Add Fortune Brands to My Watchlist.

El Paso is spinning off its exploration and production division, a move that should be complete by the end of the year. Remaining at the parent will be pipelines and other midstream assets as well as partnership interests in El Paso Pipeline Partners. For income investors, the parent looks pretty interesting. In 2012, it plans to pay out a $0.60 annual dividend, and the company plans low double-digit increases for the future. Add El Paso to My Watchlist.

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