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Jason Knapp

I Loaded Up on Double Digit Yielders this Morning...Special Situation Investing News - 8/24/2015

Panic certainly was in the air this morning, when after experiencing a major selloff last week stocks opened the day in free fall, with the Dow Jones Industrial Average down 1,000 points at one point.  You knew that the market was acting irrationally when the stock of a massive company like General Electric $GE was down more than 20% on no company-specific news at for a brief period.

The worst thing that one can do in a market selloff like this morning is to panic and sell their stocks along with the rest of the lemmings. If you can't take the pain, you'd be better off sticking your head in the sand and reading a book, going for a walk, or playing a game than selling into an irrational market. I personally use opportunities like this to put money that I have sitting on the sidelines to work, or even to sell shares of things that I believe are cheap to raise cash to buy things that are even cheaper. Forget about the cost basis of the things that you sell. It's all about where stocks are headed, not where they've been.

Even though it can be disturbing to flip on the financial news or look at your portfolio and see such a massive selloff, one really needs to keep it in perspective.  The U.S. markets were waaaay overdue for some sort of selloff. According to Deutsche Bank, the stock market, experiences a correction every 357 days on average (source). Know when the last time there was one in the United States? Almost 1,000 days ago.  That's the third longest period on record without a correction. I personally believe that in a weird way, the fact that we may be experiencing one might even be the same way that some forest fires are actually good for the environment. China definitely has issues, but right now the U.S. is actually in pretty good shape economically.

So after all of this carnage are stocks cheap?  Surprisingly, not really.  At Friday's close, the S&P 500 traded at 16.1 times 2016 earnings, down significantly from the 18.9 times it was at in July but amazingly still above its ten-year average of 16.0 times (source). While stocks in general are not particularly cheap, certain sectors absolutely are.

While investors have been selling off REITs and MLPs en masse out of fear that the Federal Reserve is going to raise interest rates making these yield instruments less attractive, I have been pounding the table that they are cheap.  I see absolutely no evidence that long-term interest rates are in danger of rising any time soon, certainly not enough to justify selling off these sectors indiscriminately. Take a look at this chart of the yield on 10-Year Treasuries, which dipped below 2% this morning.  Does this look like a rising rate environment to you?

I used the carnage this morning to load up on a bunch of stocks that now yield 10% +/- with solid coverage.  My shopping basket included:

  1. Calumet Specialty Products Partners LP $CLMT, yield 10.9%
  2. NorthStar Realty Finance Corp. $NRF, yield 10.4%
  3. Adcare Health Systems Inc. 10.87% Preferred $ADK-PA, yield 11.4%
  4. Williams Partners L.P. $WPZ, yield 9.0%
  5. New Senior Investment Group Inc. $SNR, yield 9.5%
  6. VEREIT, Inc. $VER, yield 6.7%
  7. CorEnergy Infrastructure Trust, Inc. $CORR, yield 11.13%

I bought the majority of these stocks in my retirement accounts and my children's college savings accounts.  I have a pretty sneaking suspicion that Mr. Market will cone to its senses and realize how under-priced they are some time between now and when I need the money ten years from now.  In the meantime I get paid yields that we haven't seen in years to hang out and wait for what I believe is inevitable capital gains.

And now for the rest of the Special Situation News:


Half Netflix/Half Lulu, Gaiam to Unlock Value Via Streaming Video Spin

2 Stocks to Watch in Energy REITs

Spinoff Odds & Ends: CDK Global, Mondelez International

HP shares fall as sales skid 8 percent

Yum Brands China gets new leadership as activists push for spinoff

DuPont spinoff Chemours closing Delaware chemical plant

Nice day for the recent Agilent Technologies spinoff. Why Keysight Technologies $KEYS Stock Popped Today



Former SPAC Jason Industries: Insider Purchases Validate Undervaluation Of This Hidden Champion


Investment Write-Ups

Clark Street Value: A Few Ideas From My Watchlist.  I'm particularly curious about this idea that I have owned in the past:

Newcastle Investment Corp (NCT)
I've been close to buying Newcastle several times this year, it's basically a forgotten stub after the Fortress controlled mREIT has spun-off three companies in the last 2-3 years - New Residential (NRZ), New Media (NEWM), and New Senior (SNR) - leaving a pool of legacy commercial mortgage loans/debt and a golf course management business behind. The quick thesis is the pool of debt securities is near term and liquid, it covers the entire market cap and you get the golf business for free. Fortress estimates the golf business will do $30-33MM in EBITDA in 2015, there's an easy public comparable in ClubCorp (MYCC) that trades for 10-11x EBITDA equaling ~$3.50 per share in value for NCT which trades just below $5.

Golf may or may not be in secular decline, but it's another similar business to New Media or New Senior where it has a long run away of "mom and pop" type acquisition opportunities to create a mini roll-up. Wes Edens has also mentioned using ERP Properties as a model and diversify away from golf into other recreational real estate assets. The downside is of course Fortress, and their external management fees and conflicts, its always going to deserve some discount and you have to be careful using their investor presentations as your investment thesis. All private equity guys are great at spinning a story.

For GE, breaking up is hard to do.  Here's a great stat from the article: "From 2002 to 2010, conglomerates’ median total annual return to shareholders was 7.5%, vs. 11.8% for more focused companies."

VEREIT: The Dividend Is Back And The New Business Plan Appears Sound

Strange REIT Price Movements And How To Play Them

Update: Fannie/Freddie Preferred Shares

After AerCap Sale, AIG Needs To Focus On Capital Efficiency

CDRB: 90%+ Downside, Lots Of Press Releases Except The Important Ones

'Wexboy Portfolio Performance – Total Gain & CAGR (since Blog Inception)'

Street: High-yield stocks won't take a Fed hit

Valeant: Low Valuation, Rip-Roaring Growth


Activist Investors

Nelson Peltz's Trian Shows Sysco Stake, Joins Board

Carl Icahn Gets Board Representation at Cheniere Energy

Mondelez CEO Stands By Efforts to Cut Costs

Bill Ackman’s Latest Valeant Connection: Backing Sprout

Another activist investor wants changes at TeleCommunication Systems


Whale Watching

Best Q2 Picks From Top Investors

SunEdison Falls More than 60% in One Month

Other Investing News

Monsanto Said to Raise Syngenta Offer to About $47 Billion

Summers: Fed could be making a dangerous mistake. He's kind of a jerk, but he may be right.

More than $5 trillion has been erased from the value of stocks worldwide since the devaluation of the yuan on Aug. 11

Hedge Fund Gains $100 Million in Two Days on Bearish China Bet

Despite rocket explosion, aerospace firm Orbital ATK's profits are soaring

Developers Betting Baby Boomer Building Boom has Arrived for Seniors Housing

I found this tweet from Nicholas Johnston, ‏@FirstWordNick on Twitter, particularly hilarious this morning:

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