Today, we’re publishing a new hot list of special situation stocks that could be actionable this week and provide massive gains regardless of what the market does.
Orion Office REIT Inc.
The first special situation is one that we’ve talked about before — Realty Income Corporation (O). This is a triple net lease operation that leases mostly retail properties to single-tenant owners, usually large franchises or chain stores with great credit.
When the dust settles with its latest merger, we’ll come back and revisit it. This is one of my favorites real estate investment trusts (REITs). Both Realty Income and VEREIT, which just closed their merger deal, owned a bunch of single-tenant office properties scattered all over the United States.
However, they both wanted to get rid of them, so as they did the deal, they put all of these into a new REIT that is going to be called Orion Office REIT Inc. (ONL). Now, the owners of Realty Income and VEREIT want the retail properties because they’ve been very dependable and paying their rent throughout the pandemic.
Most of their properties were actually considered essential, and they never closed their doors or missed a rent payment. On the other hand, all of the office properties are going into the spun-off ONL, so the institutions are going to look at this tiny position in single-tenant office properties that they don’t really want, and I suspect their going to dump it.
However, ONL has a good strategy. They’ve got office properties all over the US, and they’re going to methodically sell off a lot of these properties to focus on higher-growth markets in the sunbelt portion of the US. Then, they’re going to focus on suburbs as folks move from cities to suburbs.
It’ll take them a while to get this transition done, but they’re going to focus on growth opportunities in a post-pandemic world. If we see a bunch of selling pressure come into this stock, it should be a great buying opportunity to lock in what should be a pretty good stream of income in the form of dividends and participate in the growth in the suburbs that’s happening right now.
CBL & Associates Properties, Inc.
Next up is another one where I think we’re going to see a lot of selling in the days and weeks ahead. CBL & Associates Properties, Inc. (CBL) is an owner of lower C level malls in smaller towns around the US. They exited bankruptcy, and their new stock was issued to replace some of the bonds. They dumped $1.7 billion worth of debt, so they’ve really dialed back the interest expense quite a bit.
One of the executives from the distressed debt firm in the restructuring is going to be chairman of the board and will be looking over the company because his return for his investors in his funds depends entirely on how the stock price does, and he gets 20% of those gains. He’s going to be motivated to make sure things go well.
The major focus coming out of bankruptcy is to get cash flows restored, which is already happening. I’m not sure malls are going to come back all the way, but they’ve only got to come back a little bit for this stock to do very well. There should be some growth opportunities in the retail space that they can take advantage of when the balance sheet gets cleaned up.
There’s going to be selling the first few days, and it could get sold down to a point where it could be liquidated at a profit. And when we get there, it’s going to be really interesting. I’ll be watching institutional and insider activity in shares of CBL now that they’ve emerged from bankruptcy.
By the way, companies that emerge from bankruptcy with new equity outperform the market by a massive percentage, and that’s been particularly true over the last year. Institutions and more aggressive investors have been piling into these post-bankruptcy situations, and this could be another one of those great opportunities.
Last up is Tellurian Inc. (TELL), which has a great story. The executives of this team come from other great companies in the liquefied natural gas (LNG) world, and they’ve overseen the development of 75% of the US LNG output during their careers.
They formed up at this company, and they’re building their own LNG terminal as well as a pipeline from the Haynesville shale field to the terminal. They’ve got producing wells in Haynesville producing natural gas, and all the permits are in place for the terminal. Construction on that and the pipeline have begun.
It’s really simple… TELL will produce natural gas at cost, pump it down the line to the terminal, liquify it, and now they can ship LNG all over the world to places where it’s in higher demand and pricing is a lot higher.
These guys are going to be a major beneficiary of higher natural gas prices, as the supply and demand for natural gas remains way out of whack, and it’s going to take a fair amount of time to get it back to where prices might begin to settle down.
High natural gas prices are here to stay for now, and if we have a cold winter in the northeast, we’re likely to see some pretty dramatic moves in the price of natural gas. So, TELL could be a massive LNG player. The financing is in place, construction has begun, they’ve already got the gas rigs up and operating and they can drill more because they have a lot of acreage.
This is a $4 stock at the moment, and if everything comes together and works the way they’ve laid it out, this could turn into a massive homerun stock. I like the management team, I like the plans and I think it’s going to work, so I love the stock here at this price.
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