Saturday, March 05, 2011 10:26:30 AM
Bankruptcy Stocks
Investing in stocks that are going into or are emerging from bankruptcy
can be very profitable. Chapter 11 bankruptcy laws allow companies to
be protected from their creditors while the management reorganizes and
goes about the daily business of running the company.
Most investors are scared to death of the word bankruptcy. That's very
understandable. To most people it means total ruination of the financial
viability of any person or business unfortunate enough to be faced with it.
Chapter 11 reorganization rules have put a different face on bankruptcy.
Many well known companies have made the decision to enter chapter 11
protection as a way to weather financial hardships. Chapter 11 rules give
a company some breathing room (time) to reorganize and repair all the
damage that's dragging the company down.
The negative connotations associated with bankruptcy protection can
drive down the share price of the stock to all new lows. Many of these
stocks never recover to the old trading price. Others bounce back within
time, to the old price range and even higher.
Look at it this way. If the company is protected while it carries on with the
reorganization of it's debt and the reduction of it's expense structure, and
if sales and earnings stay steady or increase, then I'd say there's a more
than fair chance the company will survive and become viable once again.
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