Anthony Speciale Stock Market Analyst

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2 Special Situation Plays with Nowhere to Go But Up

I’ve been telling you for a while now that it’s going to get harder and harder to make money going forward. There’s still some momentum left in this market, but valuations have been pushed to such extreme levels that making money from a traditional stock portfolio is going to be difficult.

And don’t look for any solutions from the bond market either, as we’re coming off of historic lows in interest rates. Inflation is in the system for the first time in a very long time, and we’ve got a looming natural gas crisis that could make inflation a lot worse than it already is.

That means we need to think outside of the box and look for situations where we can make money almost regardless of what the stock market does from day to day or what the long-term trend is.

These are what I call special situations, and I have two new ideas along those lines for you today. We think there are corporate events and outside pressures coming to bear that are going to drive these two stocks higher no matter what the stock market does.

1847 Goedeker Inc.

The first company I want to tell you about is 1847 Goedeker Inc. (GOED), which started off as a brick-and-mortar furniture company. But they bought a company called Appliance Connection and have really turned their business model around. They are now going 100% online and think they can be a major player in the online appliance business in the United States.

It’s been off to a bit of a rocky start as they try to consolidate that acquisition that just closed earlier this year, but it really did expand their product line to include refrigerators, washers and dryers and all of the other stuff that you need in your house. And they’ve also got a good furniture business that’s been around for a long time.

They’re combining those now and are searching for distribution centers that can reach the southeast and southwest markets. They’re offering free shipping, which is a pretty big deal for furniture, and they’re doing everything they can to build their platform and become a major player in the online appliance and furniture business. But it’s not happening as fast as the stock market wants it to.

Now, this company was IPO’d last year, and then 1847 Holdings spun out most of its stock position in the company. They retained some, but they sold Goedeker at a very high valuation and got over $14 a share. But the market didn’t they were getting where they need to go fast enough, so it sold the stock down. The stock is now down to the $3 dollar level and is really beaten up.

There has been some activist pressure coming into play from a company called Kanen Wealth Management, which has really leaned on Goedeker and even tried to take over the entire board. Goedeker offered Kanen two board sits, which they took, and they’re now going to put a lot of pressure on management to fix the business or sell the company at a higher price.

Cannell Capital, another activist investor, also has the rights to almost 10% of the stock, and they’re also pressuring the company to improve. They are willing to wage a proxy fight and force the sale of the company if management doesn’t begin to execute.

Now that all of this is happening, company insiders, including the new CEO, are buying a lot of stock in the open market because they believe that the shares are dramatically undervalued and they will in fact be able to turn he business around and get the stock price back up near the IPO price of about $14 a share.

So, there’s a long runway here and a big opportunity to make a lot of money. The stock is only trading at four times what analysts expect the company to make next year, there’s also not much downside risk. Again, there’s lot of activist pressure to get the stock higher as well as a good deal of belief on the part of the people running the company, including the CEO and CFO, who have been buying stock with their own money.
This stock should do very well no matter what the stock market does over the next six to 12 months.

Vistra Corp.

Next up is Vistra Corp. (VST), which was in the news last year for all the wrong reasons.

VST is one of the largest power-generation companies in the US, and their biggest operation is in Texas where the winter storms hit hard last year, energy prices soared and plants had to go offline. It was a disaster. VST took the blame, and they’re still paying for that.

Texas is their largest market, but it’s not the only market they’re in. They’re currently working in 19 different states and Washington, DC. And they’re not just natural gas or solar… They also do electric and coal power and are moving into renewables in a pretty big way.

They’re generating a lot of cash flow, paying a nice dividend of about 2% and they just announced a massive stock buyback of about $2 billion, or 21% of the company, over the next few years. That puts a huge support under the price of the stock, and it already looks undervalued to me.

They took on a lot of debt to deal with the storm problems in Texas last year, but they’re doing my three favorite things with their cash flow — pay down debt to levels from before the storm, pay and hopefully grow the dividend and buy back a lot of stock.

All of that should be fantastic news for the price of the stock, and it should move much higher over the next six to 12 months regardless of what the stock market does.