Before the market opened on Monday morning, General Motors filed for bankruptcy. That wasn't shocking.
Here's what was: GM's stock actually opened higher! In fact, shares are still trading hands in the $0.50-$0.70 range on the Pink Sheets today.
Let's not waste time wondering why these shares are above zero, though. Instead, we asked a motley crew of Foolish writers, editors, and advisors a more interesting question:
Which company is the next GM? In short, which beaten-down company seems attractive at today's prices but will only break your heart?
Andy Cross, Motley Fool Hidden Gems co-advisor: The casino stocks have bounced off historical March lows, but I doubt the odds of a successful wager on their shares are in our favor. MGM (NYSE: MGM), operator of premier casino resorts like the Bellagio, MGM Grand, and Mandalay Bay in Las Vegas, recently issued roughly $1 billion in shares and $1.5 billion in notes to help alleviate near-term debt concerns. Yet it will still have around $10 billion in net debt. Furthermore, the new debt carries interest rates significantly higher than the retired debt.
If the economy turns quickly, and gamblers and families flock back to Vegas, then MGM will have the cash to pay down its interest and debts. But I worry the value won't ultimately accrue to shareholders. And that's what we want to see -- right, GM? That's why at Motley Fool Hidden Gems, we typically stick to cash-rich, low-debt winners like Chipotle (NYSE: CMG-B) and Logitech (Nasdaq: LOGI).
Matt Koppenheffer, Motley Fool writer: At the risk of not being particularly creative, I'm going to stay in the world of autos for my pick: Hertz (NYSE: HTZ). The risks are pretty plain for the car-rental giant, and the clouds may have darkened further with the GM bankruptcy, because the company has agreements in place for GM to repurchase/guarantee about a third of the cars that Hertz bought from GM.
Thanks in a large part to a leveraged buyout of the company back in 2005, Hertz is weighed down by $9.7 billion in debt, against its $1.3 billion in shareholder equity. Its debt-to-EBITDA ratio is nearly 11 and its EBITDA covers its interest obligations a paltry 1.1 times.
Unlike the pre-bankruptcy GM, Hertz is operating cash flow-positive, plus the company has been raising money to try to deal with its maturing debt load. However, a tough economy, a tougher financing market, and a bankrupt partner could put some very harsh realities in front of Hertz.
Morgan Housel, Motley Fool writer: I'm keeping an eye on Moody's. Yes, shares are down over the past year, but its outlook has downright fallen off a cliff.
As I showed yesterday, Moody's is gaining short-selling attention from investors trying to reconcile two points:
- That its credibility and business model is utterly shot, and
- That its share price doesn't seem to reflect this reality whatsoever.
Will it totally crash and burn like GM? Moody's fate might not be that calamitous, but at these prices, the odds of getting burned seem higher than the odds of coming out happy. This is a market where you can pick up high-quality names for bargain prices; why waste your time with tarnished names at nosebleed prices?
Brian Orelli, Motley Fool writer: As Pfizer (NYSE: PFE) has tried to get bigger, its stock has fallen 57% over the last five years. Don't let that beaten-down price tempt you just yet. There's potential for this extrinsic-growth addict to break investors' hearts some more.
Despite the company's crummy track record of megamergers, management says it's learned how to integrate companies, and that things will be different with Wyeth this time. That's what all addicts say. I'll believe it when I see it.
Jim Royal, Motley Fool editor: At $10 -- less than one-third of its all-time high -- American Reprographics does look tempting. The firm has nearly quadrupled off its recent lows, and trades at maybe six times its projected 2009 operating cash flow. For the long term, the company does look well-managed, and the CEO owns a hefty slug of shares.
But to get to that long term, well, you have to go through the short term. Commercial real estate -- on which the company heavily relies -- has yet to experience the economy's full fury. Sure, American Reprographics has scaled down its operations quickly, managing to keep cash flow relatively high, but it still runs the risk of blowing its debt covenants. Given these issues, as well as the "yellowing shoots" of the economy in general, color me pessimistic. I'd like to buy more at much lower prices, though.
Rick Munarriz, Motley Fool writer: When it comes to newsprint, it's been easier to bury a lead than to bury the major newspaper players. That can't last -- the industry's dynamics are changing way too quickly. A few of the heavy hitters like New York Times will survive, but I suspect it won't be long before you find McClatchy in the obituary section.
The company behind several regional favorites, including The Miami Herald, The Sacramento Bee, and The Fort Worth Star-Telegram, is stopping the presses in slow motion. With $2 billion in debt and years of net losses, its financials don't look pretty. Revenue fell by 16% last year. Analysts see the decimation widening by 20% this year. Overhead cuts will only slow the bleeding for an industry that isn't nimble enough to cut it in the digital flatlands, where every hobbyist with a computer and an Internet connection is a competitor.
Anand Chokkavelu, Motley Fool editor: Ho hum. We'd be remiss if we didn't talk about everyone's favorite sector these days. Just a quick reminder to tread carefully when it comes to all bank stocks -- from a small community bank to BB&T (NYSE: BBT) to Bank of America (NYSE: BAC). As Morgan wrote this morning, beware the headwinds. And as I've written, it may be time to look for bank opportunities, but beware the bank deaths.
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