Welcome to the latest edition of the Special Situation Investing News. I'm going to start things off with a bang and talk about one of my favorite investing ideas right now. The former parent of The Washington Post Company, Graham Holdings $GHC has morphed into an undervalued holding company that is extremely cheap on a sum-of-the-parts basis. Lots of companies are cheap when looking at the sum of their parts, but what's special about Graham Holdings is it has management that is committed to monetizing its assets and unlocking value. The next step in doing so is happening soon. The company is set to spin off its Cable One cable company. Shares of Cable One begin trading on a "When Issued" basis next week. With all of the consolidation in the cable sector, I strongly suspect that Cable One will not remain an independent company for long. Graham probably would have sold it already if it wasn't for the negative tax implications. After Cable One has been spun off, one of two things will likely happen. The spinoff itself will be cheap, causing me to purchase more shares in anticipation of a potential buyout OR the remainder of Graham Holdings will be cheap, allowing me to scoop up shares of it at a discount. That's the great thing about special situations like this, it is very likely that something here is going to be undervalued. Graham Holdings Company Declares Spin-off Dividend of Cable ONE Shares http://finance.yahoo.com/news/graham-holdings-comp... ____________________________________________________________________________________________________________ Speaking of spinoffs, another company that I own is about to split itself in two, NiSource $NI. Shares of Columbia Pipeline Group $CPGX are scheduled to begin trading on July 1st. The separation of the company's power generation and pipeline assets should unlock some value by eliminating the conglomerate discount by enabling investors who want to own either a power company or a pipeline to buy the part that they want, causing their multiples to increase. NiSource Board Okays Separation Of Columbia Pipeline Group http://www.nasdaq.com/article/nisource-board-okays... Columbia Pipeline Group Information Statement http://www.sec.gov/Archives/edgar/data/1629995/000... ____________________________________________________________________________________________________________ Someone who goes by the name "The Owl" published a very interesting article about preferred stock the other day on Seeking Alpha. I bring this article to your attention, not for the merits of the specific idea that was mentioned in the piece, but instead to highlight a type of special situation that is not often talked about...purchasing shares of preferred stock with suspended dividends. The whole point of preferred stock for most investors is the dividend. Investors in search of yield often purchase preferred stock instead of bonds for their income generating portfolios. Preferred stock for companies that have suspended their dividend is not a very attractive proposition for most investors. Owning it would be like holding onto a bond that didn't pay interest. As a result, the prices of the preferred shares in these situations often falls like a rock. That's when savvy investors like you and I can swoop in and pick up shares on the cheap. If the company that suspended its preferred dividend can get its act together and start paying dividends again, the value of the preferreds will soar. Implemented this strategy a number of times during the credit crisis. Alas, suspended dividends on preferred stock are not as common today as they were then but this is still an interesting situation to look out for. Up 60%, But Only Half Way To The Target Underlying Value: Supertel Hospitality Preferred Shares Series A And B http://seekingalpha.com/article/3229396-up-60-perc... ____________________________________________________________________________________________________________ Another article about a potential turnaround at CafePress $PRSS was published this week. I like the idea, but the margin of safety is not nearly large enough for me with the company burning cash and the amount of cash on its balance sheet not nearly as large as some were estimating it would be after recent asset sales. As a result, I continue to follow the situation from the sidelines for now. CafePress Inc (PRSS) Rebounds As Founders Look to Right Ship http://www.smarteranalyst.com/2015/06/02/cafepress... ____________________________________________________________________________________________________________ While many believe that the constant drumbeat that the world will experience a shortage of zinc as older mines are taken offline has been overstated, the investment case for Horsehead Holdings $ZINC remains very much intact. I came up with the idea of investing in companies that have issues bringing new plants or technologies online after reading Phil Fisher years ago. I have had mixed results in implementing that investment strategy, but I have gotten better at it. The key when investing in a situation like this that depends at least partly upon commodity prices is to limit one's position size. If you don't, even if you are completely right about the company eventually ironing out the problems with its new facility you can get your face ripped off by an unexpected drop in an underlying commodity. Horsehead has been having issues bringing its new zinc production facility online. I have purchased shares of the stock a couple of times after it sold off on investor disappointment with the progress at the new facility. The company gave shareholders good news this week, the facility should be able to produce at 75% of capacity in the near future. The news sent Horsehead's stock soaring. Horsehead Update on Mooresboro, NC Facility http://www.horsehead.net/financial_news.php?showal... ____________________________________________________________________________________________________________ J. Allen Capital Management posted a great educational article on its blog recently. In it, the godfather of special situation investing, Joel Greenblatt, talks about a spinoff that he was invested in that went right and then went horribly wrong. It is a great read and lesson for anyone who loves special situation investing. The entire interview is excellent, but the part that is relevant to this post starts at the 24 minute mark. For me, the piece has two key takeaways: Another lesson to this story is to be very careful with the stocks of businesses with any combination of the following characteristics: Operating leverage in economically sensitive industries. Remember that operating leverage cuts both ways...A recent boom in the economic activity a company is reliant upon. With the case of Key3Media it was the technology industry, in 2008 it was housing, and last year it was oil. Key3Media - A Joel Greenblatt Investment Case Study http://jallencapitalmanagement.com/posts/Joel-Gree... ____________________________________________________________________________________________________________ If you have reading my blog lately, you know that I have been writing quite a bit about Special Purpose Acquisition Companies aka SPACs. While this form of investment is fairly common in the United States and Europe, it has been much less so in Canada...until recently. Over the past couple of months, three new SPACs have formed in Canada. The Financial Post posted a great article the other day with background information on a few of the new SPACs. ‘Founders’ key for newest SPAC http://business.financialpost.com/news/fp-street/f... That's all the time I have for now. Have a great weekend everyone. Enjoy the Belmont. Go American Pharoah!