4 stocks that have risen from bankruptcy

Investors often view this category as risky. But many companies take advantage of Chapter 11 to reshape their businesses.

By MoneyShow.com Oct 23, 2013 2:15PM
MoneyShow.comGeneral Motors headquarters in Detroit, Mich., on June 6, 2013 (© Jeff Kowalsky/Bloomberg via Getty Images)By George Putnam, The Turnaround Letter

Post-bankruptcy stocks are often undervalued because they are usually ignored by mainstream investors who perceive them (often wrongly) as being of poor quality and very risky.

Investors remember the bad things that happened to the company to force it into bankruptcy. What they don’t understand is that many companies take advantage of Chapter 11 to reshape their businesses and balance sheets so that they emerge as very strong competitors. 

As a result, post-bankruptcy stocks can provide good returns to savvy investors who are not swayed by their past history but focus on the future prospects.

These companies all emerged from Chapter 11 over the last several years and look to us as though they are still undervalued:

General Motors (GM), one of the world’s largest automakers, went through a government assisted bankruptcy in 2009.  The company used its sojourn in Chapter 11 to modify labor contracts, rationalize operations and restructure its balance sheet. 

As a result, the reorganized GM is a much stronger global competitor.  We expect auto sales to continue to rebound and GM’s stock to follow suit.

General Growth Properties (GGP) became the largest real-estate bankruptcy in history in early 2009 when it was unable to support its massive debt load.

With a new CEO and board of directors it emerged from court protection in November 2010 as two companies, General Growth, a REIT, and Howard Hughes Corp. (HHC), which focuses on master planned communities. 

Today, General Growth’s portfolio consists of 123 retail properties, many of them in premier locations.  We expect both its asset value and its dividend to rise.

Resolute Forest Products (RFP), formerly known as AbitibiBowater, entered into bankruptcy in early 2009 weighed down by roughly $6 billion in debt. 

Resolute is a smaller company today, but it remains a formidable competitor in the pulp and paper industry. The company should benefit from growth in several of its markets, including the recovering U.S. housing market and newsprint demand in emerging economies such as China. 

The company took advantage of the Chapter 11 process to become one of the lowest cost forest products companies in North America. As the market for forest products improves, so should Resolute’s stock price.

Lee Enterprises (LEE) is a publisher of regional newspapers. Like many in its sector, the company struggled with competition from the Internet, and it went through a short bankruptcy at the end of 2011. Since coming out of Chapter 11, Lee has paid down debt and built up its digital business. 

Among those who think that regional newspapers still have a viable niche is Warren Buffett, who owns both stock and debt in Lee. The stock has done well in 2013 but could go a lot higher.

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4Comments
Oct 24, 2013 7:58AM
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GM never went into a real bankruptcy. The company was stolen from it's rightful owners and given away to unions. All to buy votes.
Oct 23, 2013 8:22PM
Oct 24, 2013 10:00AM
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a crappy company will never become anything else than a crappy company. 

 

the attitudes at the top permiate thru to the bottom. 

 

the only way to fix a crappy company is to tear it apart. 

 

while it may make for some interesting or exciting "buy low, sell high" stock, it's still a risky purchase. 

 

just like individuals who declared bankrupcy.  they are a very high credit risk. 

Oct 24, 2013 9:04AM
avatar
"Chinese manufacturing improvement buoys markets" -- this MSN headline sure makes a mockery  of CRAMERS article yesterday, which seems now to have been sheer scare mongering, and aimed at manipulating the market!!!
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