Anthony Speciale Stock Market Analyst

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Three Special Situation Stocks That Could See Big Gains Ahead

Today, I’m going to bring you my newest special situations hotlist. If you can get involved at the right price, these are stocks that you can buy now that I think will do well almost regardless of what the overall stock market does. That’s why we call them special situations!

Skillz Inc.

First up is a rare situation that we don’t see too often but is very exciting. This is a call option trade on a company called Skillz Inc. (SKLZ), which is an online gaming company that was red hot earlier this year.

However, it’s cooled off noticeably because user counts are declining and earnings aren’t quite hitting Wall Street’s aggressive targets, so the stock has really sold off. At one point in time, this stock traded as high as $46 a share, but it’s back down to around $12 at the time of this recording.

A quarter of the shares of this company are sold short, meaning that investors are betting that the stock is going to continue falling. We’ve all heard about the WallStreetBets short squeezes that have sent stocks soaring four, five or even 10 times in price, and we could see exactly the same thing happen in SKLZ.

Of course, we could see the stock keep going down, as it does strike me as not such a great company. However, the company’s CEO and chief revenue officer have recently both made major open-market purchases of their own stock. In fact, the CEO, who already has a bunch of stock, spent almost $5 million buying more shares.

Apparently, he thinks that the stock is close to a bottom point for the stock that he put another $5 million into his position. And the chief revenue officer put almost $1 million into the stock. So, there are two extremely large insider purchases where the people running the company said, “Enough is enough. Our stock is going higher from here.” Furthermore, that’s happening in the face of all the folks betting against the stock.

Now, if there’s an announcement or some piece of good news that comes out anytime in the near future concerning the business and financial activities of SKLZ, the stock is going to shoot higher, and the shorts are going to be scrambling to cover. If that happens, we could see a dramatic move in the stock price.

But again, I don’t want to just buy the stock. Instead, I want to make one, small, cheap bet in the options market. As of this recording, you can buy the SKLZ January 21st, 2022, $20 strike calls for around $0.50. I wouldn’t pay any more than $0.75. If no squeeze happens between now and Jan. 21, 2022, you’re going to lose $50-$75 for every contract that you buy. So, the risk is limited.

But if it does set up and makes a charge like we’ve seen in other short squeezes and goes back up toward the $20, $30 or $40 area, which is not impossible, the tiny call position is going to explode in value because we used the options market. Even at $30 a share, you could make 20 times your money, so a lot of good things can happen here if we see a short squeeze develop.

The insiders are spending millions of dollars of their own money, so they certainly seem to think that we are going to see good news that pushes this stock a lot higher, sooner rather than later. This is a rare trade from me, but with the high short position and heavy insider buying, something’s got to give. And I’m willing to make a small bet that a short squeeze could cause the stock to move much higher and give us a very nice payday for a relatively low investment.

MoneyGram International, Inc.

Next up is an integrated payments company called MoneyGram International, Inc. (MGI). They make the bulk of their money from first- and second-generation immigrants all over the world sending money to relatives back home.

They have something like 400,000 outlets because they have regular stores, but they also have licensed chain retailers, independent grocers and independent retailers that act as Moneygram outlets as well as post offices and banks all over the world.

Now, here again, we’ve seen massive insider buying. Several directors as well as the CEO have been buying a lot of stock in the open market, with four of the buys over six figures. But it’s not just the executives that love the stock price, as the board has recently authorized a $50 million buyback.

The company is also doing some stuff with cryptocurrencies, so there are a lot of good things going on here. Overseas remittances are picking up all over the world as the economy slowly grinds back to some type of new normal and people are once again feeling like they have enough cash to send to relatives back home.

The market cap here is $500 million, but they’re generating $100 million in free cash flow right now, which means the stock is trading at just five times free cash flow. They’re also paying down debt, there’s the $50 million buyback, they have $125 million cash on the books, they just paid down $15 million in debt and everything is going right at this company.

The CEO and the board are super excited about the trade, and I think it’s going to keep going higher from here. This is a great stock when you can jump in and just ride the momentum until it ends because we are really seeing some large institutional cash flows come into the stock based on the insider buying and the recent buyback announcement.

MGI looks like it’s getting ready to go for a ride, and we should go along with it. It’s a great business, great things are happening and the stock is starting to move higher.

TreeHouse Foods, Inc.

Last up, Jana Partners announced recently that they own 9% of TreeHouse Foods, Inc. (THS), and they are really pushing this company to separate the meal preparation business from the packaged food business.

Jana has two seats on the board, and while TreeHouse has been resisting this suggestion, they recently started exploring what they can divest or sell in order to help get the stock price a lot higher and unlock shareholder value.

Jana doesn’t play for singles and doubles. They want to hit homeruns, like they did with other grocers Whole Foods and Performance Foods. Once they went activist, both of those companies were sold for massive premiums.

They’ve made billions of dollars for their investors over the years, they have an incredibly high win rate and I think THS is going to be the next big win for Jana.