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Why Some Smart Investors Think One Bankrupt Company's Stock Is Worth the Risk

Also, updates on Conseco, Premier Parks and JJC and me.

And now, for something completely different: Like a broken record, this column often warns that any time a company files for bankruptcy, existing shareholders are likely to wind up with little or nothing. But there

are

exceptions, such as

Alexander's

(ALX) - Get Alexander's, Inc. Report

, the former department store operator that turned its underlying real estate into a gold mine.

Another example, according to several investors -- including one who made a bundle on Alexander's:

Criimi Mae

(CMM)

, a Rockville, Md.-based mortgage real estate investment trust. Here's a company that "very quickly went from the top of the world to bankruptcy court," says California hedge fund manager Eric Von der Porten, of

Leeward Investments

, who owns Criimi Mae's preferred and common stocks.

No stranger to this column, Von der Porten, a former bank credit manager who specializes in distressed securities, is most often quoted here bashing the likes of

Planet Hollywood

(PLHYA)

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,

Boston Chicken

(BOSTQ)

and

Iridium

(IRIDQ)

.

What makes

this

bankruptcy so different? Assets exceed liabilities, for one. "Criimi, it would appear, at last has some fundamental soundness to its asset base, and the trends are moving in the right direction." By that he means that even in bankruptcy, Criimi is profitable, generates positive cash flow and continues to report positive shareholders' equity. (Criimi sought bankruptcy protection after a liquidity crunch related to, among other things, the

Long Term Capital

fiasco and its impact on the financial markets.)

Of course, there's plenty of risk, including a crummy (criimi??) quality balance sheet loaded with junk-grade mortgage-backed securities, the chance of defaults among its mortgage holdings and the possibility of dilution to existing investors if the company issues stock as part of its bankruptcy reorganization. A plan is expected to be announced Friday. Von der Porten, meanwhile, believes the company could eventually earn 50 cents per share a year, once it emerges from bankruptcy, even after suffering dilution from any new stock that's offered and higher financing costs.

Those, of course, are only his assumptions, but you won't find any argument in the possibility that Criimi's common stock may hold value from William Ackman, a partner at

Gotham Partners

, which owns a 9.8% stake in Criimi bought

after

the bankruptcy filing. (Ackman also bought into Alexander's after its bankruptcy filing.) Ackman believes the company's reorganization will include selling 30% to 50% to another buyer, who will get convertible stock that could convert in the 3 to 4 range. (The stock, which traded as high as 13 over the past year, closed yesterday at 2 1/4.) He also believes the company will resume paying a dividend after bankruptcy in the form of preferred stock (it used to pay an annual cash dividend of $1.60 per share) and that it could make a special one-time dividend to cover past dividends that have been held back.

Criimi officials couldn't be reached.

Updates:

Didya see

Conseco

(CNC) - Get Centene Corporation Report

, first mentioned

here May 12 in a column headlined, "Will the Bears Finally Get It Right About Conseco?" The stock was around 30 at the time; yesterday it closed at 25 and fell a few points in after-hours trading after the company preannounced a lousy quarter and said it would change its accounting policies. (Timing is everything, and

TSC's

Peter Eavis

proved it

yesterday with

his

Conseco piece.)

And

Premier Parks

(PKS)

is down 4, or 11%, since it was

mentioned here in early August. Bad weather and a rash of industrywide ride accidents has raised concerns about future earnings growth.

And for the umpteenth time:

No, I don't have a clue what

Cramer

owns (other than what he discloses at the end of his column). And he doesn't know beans about what I'm gonna write until he sees it at 6:30 in the morning with everybody else. His office is on the other side of lower Manhattan -- a good 10-minute walk. His computers are not linked to the

TheStreet.com's

editorial computers. The only time we see one another, for the most part, is during the taping of "TheStreet.com" TV show on

Fox

, and our discussion in the Green Room generally is about one investment we share in common (actually, the only stock I own):

TheStreet.com

(TSCM)

. (Yep, I'm still getting those questions.)

And in response to something else I was asked yesterday, there's no real secret to how I do my job: No, I'm not sitting around reading

SEC

filings all day looking for a story. Remember, I'm a journalist trolling for sources, not an investor keeping up on my investments. I generally (but not always) rely heavily on my sources, who spend time reading documents to point them out. As any regular source knows, the first question I usually ask is, "Is it in the documents? If so, where?" You can't imagine how many investors

don't

read the regular filings of companies in which they're invested, which is good, otherwise I wouldn't have a job!

Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

herb@thestreet.com. Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.