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What Crazy Development Has Hertz Driving 13% Higher Today?

By Daniel Miller – Updated Oct 28, 2020 at 4:46PM

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Speculation is behind the wheel of the stock.

What happened

Shares of Hertz Global Holdings (HTZG.Q), the vehicle rental company driving through the bankruptcy process, jumped as much as 13% higher Wednesday despite broader markets sharply declining. Yes, a company that's bankrupt because of coronavirus impacts is soaring while broader markets decline on COVID-19 pessimism: the most 2020 thing ever. What's going on?

So what

Let me be clear that in all likelihood, these Hertz shares will end up worthless, but until the company is delisted or bankruptcy negotiations are complete, the stock will be subject to wild volatility.

Currently, some traders are speculating that the stock could receive a near-term boost tomorrow if Hertz's proposed debtor-in-process (DIP) financing worth roughly $1.65 billion is approved by the U.S. Bankruptcy Court.

rental car desk sign at airport

Image source: Getty Images.

Now what

These wild pops and drops in Hertz stock need to be understood by long-term investors: Investing in the stock right now is closer to gambling on whether the price pops or drops on news that will likely prove irrelevant in the end. There are some traders who enjoy this speculative movement -- and some traders are great at making moves amid such speculation.

But for long-term investors, don't make the mistake of thinking these pops are a sign that Hertz stock is poised for a rebound even with new DIP financing. Remember: The company is deemed an essential business, and as such is operating on its cash on hand while the bankruptcy process plays out, rather than shutting its doors when it originally filed for bankruptcy in May.

This new financing, if approved, may boost the stock, but it's really just enabling the company to raise capital for operations as bankruptcy negotiations continue. Good luck to the speculative traders, but long-term investors should watch from the sidelines and consider other automotive/transportation opportunities.

Daniel Miller 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.

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