Has Coronavirus Put The Final Nail In The Coffin Of These Penny Stocks?
When it comes to penny stocks, you typically will hear the big success stories of traders making money by investing a small amount. But we can’t ignore the risks involved either. When it comes to certain companies, missteps can be a big reason that they become penny stocks in the first place. That has become evidently clear for two big-name companies feeling the squeeze that coronavirus has put on the economy. Will they ever be able to recover?
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This is a great question. Seeing how the world has, by default, become more virtual, brick and mortar businesses are having a tough time succeeding right now. Sure, many will recover but at what cost? Furthermore, travel has become a thing of a distant memory. While many states and cities are beginning to roll out a “Phase 1” reopening plan, it doesn’t negate the fact that leisure travel, in general, could take some getting used to.
What that means is travel stocks could take much longer to recover. In an article last week we made the statement that just because certain stocks are cheap, it doesn’t necessarily mean you should view them as penny stocks to buy.
As the saying goes, “things can always go lower.” In the interim, it will be interesting to see how the market responds to recent developments and how the economy performs as we try to get back to some kind of normalcy.
Penny Stocks To Trade [or Fade]: Hertz Global Holdings
Who would have thought that the name of a company would reflect how its stock price is doing? Bad joke, I know but Hertz Global Holdings (HTZ Stock Report) has gone from bad to worse, quickly. On February 20, HTZ stock reached a new 52-week high of $20.85. It ended up crashing to a low of $3.18 in less than a month and traded relatively consistently between $3.50 and $6 during April and most of May. But then, “it went lower”. Shares of HTZ stock reached fresh 52-week lows of $2.32 last week.
This came on the back of bad earnings, as Hertz put it, a “major” coronavirus business disruption impacted operations. More analyst downgrades and price target cuts were the cherries on the sundae. “As such, management has concluded that there is substantial doubt regarding the company’s ability to continue as a going concern within one year from the issuance date of this quarterly report on Form 10-Q,” the company stated.
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“While my senior team and I have weathered economic downturns throughout our careers, the severe toll that COVID-19 has taken on our customers’ lives and on the travel industry has been unlike anything we’ve experienced and the speed with which it occurred is astounding,” Chief Executive Kathryn Marinello said on the post-earnings conference call.
Deadlines Approaching For HTZ Stock
There’s also a deadline quickly approaching. If you’ve followed this story closely, you’ll remember that Hertz said it reached agreements with most of its lenders. They would give it until May 22 before the company is required to liquidate vehicles serving as collateral. With 5 days left, is there any hope? The “B” word has also been thrown around. As we’ve seen it’s becoming a familiar “event” for a number of companies during these times.
But there is a “bright spot” if you call it one. The latest round of 13F filings from institutional investors is out. It showed that Carl Icahn boosted his stake in HTZ stock, now with over 55.3 million shares. Where do you stand on the auto stock? Can Hertz recover or will COVID-19 be the end for the car rental company?
Penny Stocks To Trade [or Fade]: J.C. Penney
Let the jokes begin, J.C. Penney (JCP Stock Report) is a penny stock. But it has been this way for quite some time. The decline of brick and mortar retail has resulted in a slow bleed for the retailer. At more than 1 century old, 2020 has been one of the most difficult by far.
A staple across America’s malls, J.C. Penney has struggled to transition into a digital brand on top of its brick and mortar locations. No matter how you look at the chicken and egg situation here, JCP’s debt burden hasn’t helped drive profitability and profitability hasn’t been big enough to chip away at debt.
JCP Stock Drops On Bankruptcy Headlines
The company made a hefty $17 million interest payment last week to avoid “event to default”. But Friday after the closing bell, J.C. Penney dropped a bombshell that saw JCP stock price crumble. The company filed for Chapter 11 bankruptcy in order to implement a reorganization plan. Specifically, the company entered into a restructuring support agreement with lenders holding approximately 70% of JCPenney’s first-lien debt.
“Implementing this financial restructuring plan through a court-supervised process is the best path to ensure that JCPenney will build on its over 100-year history to serve our customers for decades to come. We believe the RSA and the widespread support we have received from our asset-based lenders and first lien lenders will allow us to pursue a financial restructuring on an expedited timeframe,” said Jill Soltau, chief executive officer of JCPenney. But is this the fix investors are looking for? That’s the big question.
Among items in its “transformation strategy,” the company explicitly highlights “successful implementations” to its foundational improvements. These included “offering compelling merchandise,” “driving traffic,” and building a “results-minded culture”. But how is that translated exactly?
For starters, the company said it’s going to reduce its store footprint through a phased approach. More details are said to follow in the coming weeks. For now, however, it will be interesting to see how the market digests this information. Shares of JCP stock dipped to $0.15 during aftermarket trading on May 15.
Penny Stocks To Trade [or Fade]: General Electric
While this isn’t a penny stock currently, General Electric (GE Stock Report) is now 49 cents away from dipping into penny stock price levels. Shares of GE stock tested the 52-week low level again on May 15. For now, that sits at $5.48.
Based on the standard definition of penny stocks, anything under $5 can be considered. Similar to the other companies, GE stock had a rough 2020 so far. After reaching 52-week highs of $13.26 in February, the market went into a free-fall for the company.
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GE isn’t a stranger to penny stocks, however. Over its storied past, shares of GE stock have traded below $5 on several occasions. But currently, this is a low level that hasn’t been seen in 3 decades. One of the biggest factors has been the airline industry.
Will GE Officially Become A Penny Stock?
Since the company is among the largest makers of jet engines and components, GE Aviation has become its largest business segment. You might think GE Healthcare would be the top earner for the company but it actually pales in comparison to Aviation as noted in its Q1 financials.
There are investors who are continuing to bet on GE stock however. Activist investor Nelson Peltz recently lauded GE’s CEO saying Larry Culp is ranked among the “best industrial managers” who’ve been dealt an “awful hand”. Peltz highlights the company’s balance sheet as an indicator that GE could be prepared to weather this storm. The big question right now is will GE officially become a penny stock in the near future or not?
In light of positive sentiment from the likes of investors such as Peltz, there’s still a long road ahead. GE’s positioning in aerospace could be the thing that gets it some footing but it could also be the thing that pulls the rug out if the industry doesn’t get back in motion sooner than later. Where do you think GE stock will be by June? Will it become one of the stocks under $5 or can it rally? Comment below.
