TSIF (99.95)

Recession over, employers hiring, Any Bankruptcy candidates left???

April 06, 2010 – Comments (11) | RELATED TICKERS: ZLC , BGPIQ , MPG

I'm not so sure that the world is all rosy.  The farms near me don't smell terribly rosy after all the rain we've been having.  I still know plenty of unemployed neighbors and the foreclosure market is rolling along, (although it's also spawning some jobs.....maintaining the empty houses).  All in all though, things are better in the markets and credit seems to be loser. Those companies in financial trouble are able to spin off some assets when needed, roll out more stock, reconfigure debt, and some even are getting new orders and ramping back up.   Are there any bankruptcy candidates lurking out there that are still pickable in CAPS??? ($100 Million Market Cap and $1.50 Share price)??

There have been MANY blogs and analysts predicting this is a junk rally. Overall, I've gotten my butt kicked by downthumbing some equities whose fundamentals just seem BAD...I mean worse than the farm next door.  Apparently Mr. Market isn't concerned. The thought of grabbing a stock at $2.00 that was $20 three years ago just leaves the speculator salivating as the market trends upward and running like they are on fire on a slight downturn.

I think if I could "go back" and do it over again, the lesson I'd like to take with me is that NO banks, creditors, lien holders, etc. want to take over a business that is going belly-up on paper even if it means settling for pennies on the dollar to help them reorg.

Even more interesting is that several of the companies who went bankrupt officially are far stronger than ever.  GGP has reorg'd and now has suiters at $17+ per share. Pilgrim's Pride files for bankruptcy and soars from $1.70 to $11.00 per share.  Many equities that dived to sub-$1 have risen 10 to 20 fold after fears of bankruptcy subsided.

While I wish NO company ill-will and a bankruptcy doesn't mean the end, (in some cases it could mean a fresh start)....here are some that are still on my list of fundamentally "troubled" that are pickable in CAPS.   In no particular order:

1. ZALES,  ZLC currently $2.93 is an example of a company that is trading well below book value due to assets.  The trick to grading a company trading below book value is to determine if the "books" are accurate. Some REIT's are well below book value, but what is the true value of the assets.  Some Banks are below book value, but what is their exposure to bad mortgages.  IN the case of Zales, I think they are over extended with excessive store counts.  UltraLong pointed out in my recent blog   http://caps.fool.com/Blogs/ViewPost.aspx?bpid=361237&t=01000430564104330656   that they've been turning over CEO's excessively and having trouble with credit. Notably CITI and thier charge cards and vendors requiring cash upfront. Zale's competitors are capitalizing and losing market share will greatly compound their issues.

I don't think Zales is a BK candidate. I don't think any of their creditors wants the business. They could sell down inventory and close some stores. They had better do something soon, but while they are fundamentally challenged, I DON'T put them in the BK slot. If they do, then they would be the type of business I might try buying on the collapse and trying to ride back up like a GGP or Pilgrim's Pride.

2. Borders (BGP) Soared 40% on earnings with some optimism on Christmas sales, debt refinancing and eBook sales.  I'd put Borders on a short watch list of equities that needs some HELP or a reorg. I could see Borders doing a Ch. 11 reorg.   Borders ramped their inventory for Christmas and with the accounts payable high, books losing favor, and their competitors having a better footprint for eBooks, I see little relief for them in the near future.  I would put Borders on a BK watch list.  Their inventory puts them NO WHERE near BOOK VALUE.  (Sorry, couldn't resist).

3.  Maguire Properts (MPG) is up 50% since I called them down. Proving yet again that downthumbs on sub-$5 equities can HURT here on Caps.  The multiplier effect can make a downthumb from low levels very RED.  Some here say that downthumbing is easier points than upthumbing.  I definitely disagree.  A downthumb gone wrong is potentially hundreds of negative points, one that goes right is no more than 100 plus the gain in the S&P over the time period.

In my opinion, Maguire would be Bankrupt already, but for their putting their properties under separate mortgages. This has allowed them to selectively default or sell distressed ones without the entire company being liable.  Lost $5.48 per share fourth quarter, including $290 Million on properties it defaulted on last year. It stopped paying on six Southern California properties that it owes $888 Million on. Debt load is down to $3.5 Billion from $5 Billion a year ago. Guess that happens when you default on property and don't own it anymore, nor did you get any money from it. The six Southern California properties are for sale...wonder if they are "underwater"...may as well be!  The company founder is offering to buy three of them by taking over mortgage payments. $200 Million of cash on hand, (after selling two properties) isn't likely to go very far.

The 50% run-up the last few weeks would pretty much show that I don't have a clue what I'm talking about.  But Maguire is running out of GAS  (MPG, get it?). 

4.  Hamni Financial Corp, (HAFC) is on my list as a distressed bank.   As per my comment on Zales and book value, Hamni has a lot of questionable loans it keeps allocating funds for.  Hamni has been openly shopping themselves out, predominantly to Korean banks that fit it's core clientele. Hanmi received a letter on November 5th that regulators had concerns over their loan portfolio and capitalization. While it's possible the threat may have sent Hanmi below it's true value if the market stabilizes, it still appears to be a high risk investment. It's almost impossible to value banks, and Hanmi is below book value. Overall, however, I don't see this as a safe investment.

Mr. Market is on a tear.  DragonLZ is racking up hundreds of points a day while some of my downthumbs are chewing hundreds from my point total.  I don't know where the speculator's rally is going, but I can't resist a good downthumb.  Can anyone point me at any other tempting targets for me to bloody my thumb over.   Tell me who and why you nominate a pickable equity for the bankruptcy charm of 2010.

Now those who hold any of the above or any submitted near and dear to your hearts, sorry.  This is a long term play.  No daily egging me with excess Pilgrim Pride Easter eggs on multi-percent updays for the candidates.   But I do expect to learn something from this exercise that I can use the next recession...which may not be that far away if the printing presses keep working overtime.

TSIF

The Sky Isn't Falling today....but some equities are in more trouble than others!  And what's with all the rain lately?!