For those who are new to Distressed Investing, or for those who are looking to add to their current portfolio holdings, every month, we highlight three current portfolio picks that are at an attractive buy point. We list them below. While we regularly alternate which companies we list as our “Best Buys,” removing a stock from the list does not necessarily mean we no longer recommend it up to its “buy up to” price. It’s only that the new picks present an even more compelling investment opportunity. We suggest you focus on these:
AMC Entertainment (NYSE: AMC) Stock
In our January 9 report, “A Nail-Biting Sequel,” we recommended purchasing shares of movie-theater chain AMC Entertainment (NYSE: AMC).
AMC’s management has done an outstanding job of managing the company’s operations and finances through the pandemic and its aftermath. The company has defied the naysayers who believed AMC might need to file for bankruptcy to reduce its debt. Over the last five years, management raised money by selling stock, bought back some of its debt at a discount in the open market, and extended bond maturities.
AMC is now on sound financial footing, and poised to benefit fully from the increasing number of movies scheduled for release in 2025 and 2026. For example, the number of “tent-pole” movies (those released at 2,000 or more locations) is expected to rise from 95 in 2024 to 110 in 2025. Though the projections for 2026 have not been released yet, the number of these large-grossing movies is likely to rise again in 2026.
With its financial house in order, the company is planning to use its free cash flow – after all required theater maintenance and debt payments – to increase its premium offerings like extra large screens, deluxe sound packages, and reclining chairs. The company’s research indicates that many customers would choose to pay a higher ticket price for a more comfortable and better viewing experience.
In our recommendation last month, we detailed why we believe that AMC’s stock – currently trading at $3.25 per share – will be worth $10 or more per share within the next two years. Note that while we find AMC’s shares very appealing, we emphasize that they are also very speculative. We reiterate our recommendation to purchase AMC’s stock up to $4.50 per share.
Albemarle 7.25% Series A Mandatory Convertible Preferred Stock (NYSE: ALB.PA)
In our September 12 report entitled “Dig, Baby, Dig,” we recommended purchasing the preferred stock of Albemarle, the world’s largest miner and refiner of lithium. The supply of lithium has risen recently as new capacity, including both mines and refineries, has come online. At the same time, demand for electric vehicles (“EV”), whose batteries represent the most significant demand for lithium, has grown more slowly than expected. This combination has caused lithium prices to fall sharply from their peak almost two years ago, leading to a sharp decline in the stock prices of producers like Albemarle.
Our September 12 report explained why we believe the price of lithium will rise meaningfully from its current depressed level, thus causing Albemarle’s preferred shares to increase in value. This security pays a 7.25% dividend and will be converted into ALB stock by March 1, 2027. (Please see our “Dig, Baby, Dig” report for details on the conversion mechanism.)
We caution that these preferred shares are extremely volatile. It’s not unusual for the price to move 5% to 10% in either direction during a single trading day. Accordingly, we advised taking a half-size position to start. We continue to recommend gradually adding to this position up to a price of $48 per share, until reaching what you consider a full investment position. The Albemarle preferred stock is currently trading around $44.50 per share.
Diversified Healthcare Trust Stock (Nasdaq: DHC)
Diversified Healthcare Trust (Nasdaq: DHC) is a real estate investment trust (“REIT”), a structure that owns real estate on which it collects rent and distributes as dividends to investors. In May, we recommended a combo buy – shares of DHC along with its 4.75% bonds maturing in February 2028. As we detailed, this company is out of distress and now has a healthy cash position and presents a long runway of opportunity.
In our May 10 report, based on a $150,000-per-unit valuation of its senior house properties, we arrived at a valuation of $10.88 per DHC share. Even if that per-unit valuation were to fall considerably because of a softening market, it still is considerably more than its current price of around $2.50 per share. We continue to recommend buying DHC stock up to $3 per share.
Published February 26, 2025