Please ensure Javascript is enabled for purposes of website accessibility

Why Avis and Hertz Stock Just Popped, but Latam Airlines Dropped

By Rich Smith – Updated May 27, 2020 at 2:20PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A bullish pronouncement from JPMorgan's CEO just helped double the share price of bankrupt Hertz.

What happened

The stock market is sending investors confusing signals Wednesday morning, with the Dow index of blue chip names rising nearly a full percentage point in 11:30 a.m. EDT trading, but the Nasdaq down 1.3%.

Perhaps the most curious data point in all of this, though, is the fact that shares of bankrupt Hertz Global Holdings (HTZG.Q) just jumped 118%, pulling up rival car renter Avis Budget Group (CAR 6.34%), up 5.8%, along with it. At the same time, similarly bankrupt Latam Airlines Group (NYSE: LTM) is down 14.9%.

If you ask me, JPMorgan Chase is at the center of all this uncertainty.

Car Rental sign in an airport.

Image source: Getty Images.

So what

Yesterday was important for the stock market -- not just because of the rally in the S&P 500, but because in the midst of that rally, we saw two major companies file for bankruptcy: Hertz and Chilean flyer Latam Airlines. (Hertz actually filed for bankruptcy on Friday, but Tuesday was the first day investors were able to trade on the news).

Although both firms were doing fine earlier this year (Latam was profitable, and Hertz was getting there), COVID-19 has done a number on the travel industry. Between travel restrictions and stay-at-home orders, the airlines that fly people to their destinations and the car rental companies that help them move around once they get there got knocked down as their business dried up. In the case of LATAM, some 95% of flights have been grounded since the coronavirus struck. Meanwhile at Hertz, the company has had to lay off half its staff, close some locations, and subsist on minimal revenue at others, as the trend moves closer to "zero revenue," warned the company's CEO.  

Today, however, stock market optimists got a confidence boost when JPMorgan Chase CEO Jamie Dimon chimed in and predicted "a fairly rapid recovery" in the U.S. "The government has been very responsive," Dimon said, with government stimulus money flowing forth in a torrent that "fills every crevice" of the stock market -- at least in the U.S.  

Now what

This is not just good news for JPMorgan stock, either. This government money that Dimon speaks of seems to be filling crevices at the big U.S. car rental companies as well -- but not at Latam.

That's not surprising. As a Chilean airline, Latam can't be expected to benefit from U.S. government bailouts, and could have a hard time climbing out of bankruptcy. But I'm not sure I'd be so quick, as other investors are being, to rush into shares of just-as-bankrupt Hertz, either.

After all, as The Wall Street Journal pointed out in its big weekend piece on the Hertz bankruptcy, "equity holders rarely survive a bankruptcy," and the highest profile of Hertz's backers, Carl Icahn, who owns nearly 40% of Hertz's shares, "is expected to lose his entire roughly $1.5 billion investment." Any loss that Mr. Icahn can't avoid, smaller investors shouldn't expect to escape either. I fear that investors rushing in to scoop up Hertz shares at penny stock prices are going to be burned.  

In the event you trust Dimon's prediction of a "fairly rapid recovery," I suspect you're better off investing in the company that's the most logical beneficiary of both that recovery and the Hertz bankruptcy now ongoing: Avis Budget Group. At just six times trailing earnings, Avis is clearly the better value stock.

Rich Smith 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Hertz Global Holdings, Inc. Stock Quote
Hertz Global Holdings, Inc.
Avis Budget Group, Inc. Stock Quote
Avis Budget Group, Inc.
$157.87 (6.34%) $9.41
JPMorgan Chase & Co. Stock Quote
JPMorgan Chase & Co.
$107.73 (3.09%) $3.23

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.