Jim Osman
- Jim Osman, founder of The Edge, channels an event-driven approach into his investment recommendations that go "beyond the numbers."
- His special situations strategy is reminiscent of legendary hedge fund manager Joel Greenblatt.
- Osman shared three stock picks that embody his strategy of exploiting special situations including spinoffs, insider buying, and corporate restructurings.
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Jim Osman, founder of The Edge Group, thinks about investing differently than most. He's a pure-blooded contrarian.
"If people are all going right down the line, I might hang a left," he said in an exclusive interview with Business Insider. "I just don't go with the crowd on stuff. More often, I've found that pays off."
Osman, who is set to publish a book detailing his strategy this spring, made a name for himself sniffing out opportunities that have mostly gone overlooked. He's what you would call a "special situations" investor. Circumstances like corporate restructurings, insider buying, recapitalization, managerial incentives, and spinoffs all top his list of attractive opportunities.
Instead of following the well-trodden paths of conventional investment strategies, Osman looks for catalyst, event-driven situations. He says that's where hidden value lies - and his clients (with a cumulative AUM of over $400 billion) seem to think so as well.
If that type of special situation strategy is starting to sound familiar to you, it's because Joel Greenblatt, legendary hedge fund manager at Gotham Funds, employs a similar approach - and he's been trouncing markets for decades.
To Osman, it really all comes down to one question: "What are you seeing that the market isn't?"
"We have to try and find situations out there - or stocks going through some sort of corporate change - that will ultimately change the value of that stock that is not based on numbers," he said. "We have to find something that the market is missing - and that's a challenge every single day."
He continued: "I have to see something beyond the numbers."
In Osman's opinion, traditional valuation metrics are no longer as valuable as they once were. Technological advancements, algorithms, and increased competition have squandered away any advantage they once held.
Against that backdrop, Osman shared a few stock picks that he thinks are primed for success.
1. The Madison Square Garden Company (MSG)
"It's the gift that keeps giving," he said. "They're separating the sports business - which is the [New York] Knicks and the [New York] Rangers, - and they're spinning off their entertainment business."
This is exactly the type of special situation that Osman loves.
Over the last decade, MSG completed three spinoffs - and since Osman first recommended MSG to investors in 2009, the stock has shot up from around $17 per share to over $300 today. What's more, he said that the Dolan Family (owners) aren't necessarily opposed to a sale of the teams, noting a 2018 interview where James Dolan said he's "not ruling out the possibility."
"Madison Square Garden is always going to be iconic," he said. "They're building for the future. You can't think of a more perfect company."
2. ConAgra (CAG)
"We spotted an insider in there," he said. "We found him to be one of the key insiders."
He continued: "He's one of the guys that picks bottoms of these stocks - and every time he's right."
The theory behind Osman's bullishness is simple: The insiders at a company know the ins and outs of their business better than any investor could - and he's found one who has served as a reliable purchase indicator.
Oddly enough, when I spoke to Osman, he noted that the insider doubled his position at a higher level on that same day - over a $1 million transaction.
"I would say watch out for ConAgra in the near-future, because the key insider is buying and he's doubled his position," he said.
3. Arconic (ARNC)
"Ultimately, the stock fell because of the fire in London," he said, referencing a fire in London's Grenfell Tower that killed 79 people. "They were the suppliers of the fabrications in the units."
He added: "The stock looked terrible. When things are so bad like that, it's usually an opportunity to buy."
Osman saw value in a CEO who was reshaping the business, thinking about spinning off less profitable portions of the business, and incentivizing himself to reap the rewards if the stock ever recovered.
Since then, the stock has just about doubled and looks to have more room to run.
"When things can't get any worse, they've got to get better," he concluded.