Special Situation Ideas for week of 7-Oct-2013

Those looking into some catalyst might want to ponder over these names for the week. I have done research on few of them, the other I have read online on Barron’s and other publications.  These are def. is worth a serious look.

Penn National Gaming (PENN): Penn will split on Nov. 1 into a real-estate investment trust called Gaming & Leisure Properties (GLPI), and an operating company that will lease properties from the REIT. By Jan-14, PENN holder will receive a total of 1.35 G&LP shares and a special $3.33 cash dividend, plus more from the REIT.  The operating company could be valued at 8x this year's estimated cash flow of $1.95 a share, or $15.60 a share, while G&LP could command as much as 13.8x estimated cash flow of $2.93, or $54. Add the special dividend, and the parts could be worth north of $70 a share, or 30% more than the current stock price. Another growth factor might be the consolidation of the regional gaming industry, whose markets have been suffering. PENN management has said it received many expressions of interest from potential sellers. The U.S. has more than 100 privately owned gaming operations, many run by aging owners who might want to cash out. PENN CEO Peter Carlino, owns a 14.5% stake. One thorny issue for Penn and G&LP is excess capacity in regional gaming. It the top of the market in 2007, Carlino arranged to sell Penn to a consortium led by Fortress Investment group. The deal fell apart, but Fortress kept some shares and Penn got some cash, which it used to buy a distressed M Resort in Henderson, Nev. When the split is completed, the Carlino family will own just under 10% of the operating company and a higher percentage of the REIT; and Fortress, 9.9% of each entity.

PICO Holdings (PICO): own a water-resources company, a West Coast home builder, and a canola-seed crushing company.  PICO seeks out undervalued assets. Over the years, it has evolved from an insurance business into a company with three core divisions. Vidler is PICO's largest division, accounting for 45% of book, as of June 30. UCP contributes 26%, and its 88% interest in Northstar, 13%.

Its assets, which are leveraged to the housing recovery and the growing demand for water in the Southwest, could be worth much more than the market is giving them credit for.  Industry estimates the stock could be worth about 50% to 75% more.

Of all the divisions, Vidler could hold the most potential. Much of the division's water rights are located in states where there are water shortages, like Nevada and Arizona. The Southwest is seeing its population grow faster than the national average. As housing recovers, home builders will need to secure water for their properties. Municipalities also buy water rights. In February PICO entered into an option agreement with Lincoln County water district in Nevada to sell 7,000 acre-feet of water rights for $12,000 per acre-foot, well above the company's cost. PICO acquired the developer in 2008, and throughout the downturn it bought up residential lots at bargain prices in hard-hit markets like Central Valley and Monterey Bay, Calif. Meanwhile, the Northstar canola refinery is poised for growth. The operation could benefit from rising consumption of canola in the U.S. Canola oil's lower fat content compared with other oils has made it attractive to health-conscious consumers. PICO can be valued at $30 -$35 a share. Additionally, CEO has 838,000 options with an exercise price of $33.76. The options expire in December 2015. 

NCR (ticker: NCR):  The stock has since surged more than 77%, however hedge fund Marcato Capital Management sees the potential for a 50% rise in the next year.

NCR is riding a number of growth waves that have taken annual revenue from $5.3 bn in 2011 to an expected $6.3bn in FY13. Its primary business is ATM’s which have benefited from the upgrades in technology by U.S. banks to permit ATMs to optically scan checks tendered by customers for deposit. NCR also has a major presence abroad and will benefit from major rollouts of ATM systems in emerging nations like China. It now gets 50% of its revenue from overseas. NCR is also at the forefront of the movement toward self-checkout equipment, having signed a large contract with Wal-Mart Stores (WMT). This has revived growth in its point-of-sale business. Airlines now operate kiosks that sell and issue tickets to passengers, and restaurants, bars, and movie theatres are all employing NCR equipment to help manage electronic sales via credit cards and other payment systems. NCR is expected to earn $3.10 a share in FY14 on revenue of $6.7bn. With a P/E 15x, that would justify a stock price of over $63.

Genworth Financial (GNW): GNW’s mortgage unit could benefit, as the Federal Housing Administration ceded market share to private entities in providing mortgage insurance. The FHA has significantly raised prices in the interim, giving Genworth and rivals like Radian Group (RDN) a chance to firm their pricing and possibly gain share. FHA once had a 74% share of this market, which has since dropped to 64% and is projected to fall toward 60% by year end. GNW, the No. 4 insurer, has maintained a 13% share. GNW EPS is projected to rise to $1.12 this year from 81 cents a year ago. Revenue is down to $9.5bn this year from $10bn last year. Shares can be priced at $20

HD Supply Holdings: Former Unit of Home Depot. Carlyle, Bain and Clayton own 19% each. HD owns another 9%. Post IPO, none of PE have sold their shares, which are at purchase price that is approx. $20 a share. NEED TO LOOK AT HOW DEBT IS BEING PAID DOWN. maturieis are for 2017, 2019 and 2020. Also benefitting from tax losses. Stock can go to approx. 42% in 2/3 years.                 

Infinera (INFN): Growing demand for data, leading to growing demand for optical network equipment and infrastrcuture leaders. The company is betting on its new Photonic integrated circuit (PIC), used inside optical transport platforms. it has the worlds only commercially deployed large scale PIC, which it believes is a game changer for its cost scalability and speed. Worhtwhile company to look into for medium term investors.

Personal Note: I have sold my HES CALLS expiring in Jan-14 at 40% profit. I still hold BWLD puts expiring March 2014.