Sometimes, it's possible to see a troubled company's trajectory toward Chapter 11 from miles away. In the case of utility company PG&E (NYSE:PCG), the disaster was not truly obvious until it was almost too late to react. Now that its share price has cratered from the high $40s in November to single digits this week, the question for anyone who rode it all the way down (thinking, perhaps, that California wouldn't let the company implode) is: What to do now?
In this segment from MarketFoolery, host Chris Hill and Fool.com contributor Dan Kline discuss PG&E and how to handle such troubled assets more broadly.
A full transcript follows the video.
This video was recorded on Jan. 14, 2019.
Chris Hill: PG&E is filing for bankruptcy because of the liability around the wildfires in California. Not surprisingly, shares of PG&E down 50% today. Again, this is not a surprise. I'm curious if you've ever found yourself in this situation. This is a question we've gotten before from not just investors in PG&E, but investors in a distressed business. You could look at Sears at any point over the last 12 months. What's your go-to move in that situation as an investor? Even though I've got a couple of stocks in my portfolio that are way down, they're not on the verge of bankruptcy or anything like that. I'm loath to sell them. I think if I were in this situation, I would look to cut my losses.
Dan Kline: First of all, if you're in this situation, forgive yourself. This isn't bad prognostication. This isn't, you really believed Sears' strategy of doing absolutely nothing would turn their business around. This is liability in a disaster. Maybe, if you knew each member of management personally, you might have known, but there was no way. Let it go.
Then, get out the best you can. Holding on to the stock...there's not going to be a turnaround. These assets will all be sold because this company does need to still operate -- at least, these services need to be provided.
Hill: It's a utility.
Kline: But, three years from now, when they've figured it out, when the last PG&E desk chair is sold and there's a fund, the fund is not going to pay back stockholders. You don't want to be waiting to get your $0.02 on the $1.00. Just get out. Call it a lesson learned. Hopefully, you have some gains to offset those losses.
Hill: Right. We were talking earlier, I was saying, "Gosh, if you're in this situation with PG&E, maybe one of the silver linings is the timing of it all." We're a couple of weeks into the year. If you're selling now, then you've got 11 months to look at your portfolio and think, "Is there something I want to sell at a gain? These losses will offset that and I'm going to have a very attractive tax bill." And by very attractive, I mean, maybe you're paying nothing for capital gains.
Kline: You have to look on the bright side because this isn't good for anybody.
Chris Hill has no position in any of the stocks mentioned. Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.