Popular bankruptcy stocks Hertz, JCPenney plummet as risk-loving investors cash out

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Hertz and JCPenney shares tanked on Tuesday after a monumental two-day rally fuelled by swaths of carefree retail investors.

The debt-ridden rental car company plunged as much as 38% soon after markets opened before paring most losses. The retail giant slid 34% to intraday lows. Yet both major declines only erase some gains minted over the last few days.

Both companies have seen outsized trading volume in recent sessions as retail investors turn to newly bankrupt companies to ride a wave of volatility. Shareholders historically lose out when firms go bankrupt. Yet Robintrack, a website that tracks trading activity on popular discount brokerage Robinhood, shows investors flocking to the firms and their extremely low share prices.


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Hertz traded around 82 cents as recently as June 3 after nosediving through the coronavirus pandemic and its late-May bankruptcy filing. The announcement drove a doubling of Robinhood users holding Hertz shares, and a continued rally from Thursday to Monday’s close placed shares as high as $US5.88 each.

JCPenney experienced a similar boost. After trading as low as 19 cents on Thursday, the stock doubled on Friday and soared even higher, to 65 cents, by Monday’s close. The chain filed for bankruptcy on May 15, leaving experts flummoxed by the sudden explosion in retail interest.

The unconventional strategy relies on short-term gains or a miraculous recovery from heavy indebtedness. Bankruptcy proceedings often prioritise repayment of lawyers, suppliers, and bondholders before shareholders see a penny. The unexpected influx of retail traders defied convention and baffled more experienced investors, including industry giants like Carl Icahn.

The billionaire investor dumped a 39% stake in Hertz in late May when shares traded at 72 cents each. The sale represented a nearly $US2 billion loss, yet in two weeks, the firm’s shares rocketed more than 540%. Where Icahn lost, tens of thousands of Robinhood investors won.

Hertz traded at $US4.77 per share as of 12:55 p.m. ET Tuesday, down 70% year-to-date.

JCPenney traded at 52 cents, down 53% year-to-date.


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