If Thomas Edison were still alive and still inventing breakthroughs like the phonograph, electric light, and an app-activated mouth plug to shut up airplane talkers, then it’s likely — more than likely — that he would hang his head in sorrow to see what’s become of his beloved company that he co-founded in 1892, General Electric (NYSE:GE). Never mind that imaginary scenario, though, as for investors holding GE stock, the pain has been very real these past few years.
To wit: delisted from the Dow Jones Industrial Average, where it was a founding company, after 110 years (2016). Slashing its once rock-solid dividend to a penny (2018). Even its prestige went out the window when the mighty, history-making progenitor of the light bulb put its lighting business on the sales block (2018). Smart business move? Perhaps. A sign of trouble and terrible image management? Definitely. No wonder some shareholders asked, “Who turned out the lights?”
All this brings us to 2020, where the story has swirled — rather anxiously — around whether GE can make a comeback, now or ever. After all, it made a big bet in the energy sector at almost the exact time energy stocks began to fritz, flop and flatline. Oh no. Nor is 2020 exactly the year of big recoveries for stock stalwarts. That established, let’s make like the Wizard of Menlo Park and see if we can shine some light on the subject.
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GE Stock and the Post-Welch Woes
Today, GE stock trades at $6.50 per share, a number you can put in perspective a number of ways. Once upon a time, GE was a buy-and-hold dream, the kind of company you had every reason to expect would head off course, if it ever did, at battleship-slow speed. And surely, many a smart investor would’ve been delighted in 2000, when the stock traded at $57 and had an absolutely uninterrupted climb of 20-plus years.
And then, it happened.
CEO hall of famer Jack Welch left GE in 2001 after 20 years at the helm. And almost immediately, the Dow Jones dominator that never knew a big loss in its history lost it in a big way. Forget U-shaped recoveries or K-shaped recoveries or whatever letter is in vogue these days: GE went on a 20-year plummet that undid every single thing Welch accomplished in his 20 years.
Gallery: 6 Potential Bankrupt Companies to Watch Thanks to Pandemic Woes (InvestorPlace)
This year has accelerated emerging trends leading to many bankrupt companies. Prior to the novel coronavirus pandemic, sectors like energy and oil were falling out of favor to a degree. Clean energy and technology trends led to that shift. Price wars and the pandemic supercharged the decline in oil. Retail has been absolutely crushed, and the same is true of entertainment stocks. This has accelerated the decline of weaker stocks in those respective sectors. The result is that multiple equities are now on bankruptcy watch. Investors have shown a lot of propensity for risk and somewhat surprisingly have flocked to these equities. What follows is a discussion of stocks that are in dire straits. This includes the following: Oasis Petroleum (NASDAQ:OAS) Remark Holdings (NASDAQ:MARK) Twinlab Consolidated Holdings (OTCMKTS:TLCC) CBL & Associates Properties (NYSE:CBL) Dave & Buster’s (NASDAQ:PLAY) AMC Entertainment (NYSE:AMC) None of these names are truly bankrupt companies yet. In fact, some of them may bounce back. But if you’re betting on a comeback in these stocks, remember that they will need to change fundamentally. Let’s take a closer look at what’s going on with each of these companies now.
Future Bankrupt Companies: Oasis Petroleum (OAS)
Oasis Petroleum is in dire straits. After hiring bankruptcy lawyers and missing debt payments the indicators couldn’t be any clearer. OAS stock has been in decline for the past 5 years. Most recently, it skipped a $30 million interest payment on convertible 2022 notes. Oil and gas producers have been particularly hard hit during the pandemic. This continues a trend in the sector, which has seen price wars, growing green energy interest and demand bottom as people shelter in their homes. The trend doesn’t show any signs of abating. According to BloombergLaw: “Oil and gas bankruptcies have accelerated this year as the coronavirus slows the economy and tamps demand. At least 36 companies have sought Chapter 11 protection in the first three quarters of 2020, according to a report from law firm Haynes and Boone LP. More than 240 producers have filed for bankruptcy since 2015.” The company has been in distress for several years having had an operating loss for each of the past 3 years. During that same period, the firm issued $430 million in new debt. It also warned that it might be a going concern should it not be able to restructure its current debt.
Remark Holdings (MARK)
According to its investor relations page, Remark Holdings is developing on AI focused software and business solutions. These are certainly areas that investors are interested in. But MARK stock might be one of the next bankrupt companies of 2020. Notably, the company has been on shaky footing for the past decade. It has been volatile but traded in the range of $5. It spiked above $14 in early 2018 and has been in sharp decline thereafter. The company plans to hold a vote Oct. 21 to increase the number of authorized common stock shares to 175,000,000. The company also dismissed its previous auditor on Aug. 31. Remark has incurred $359.1 million in losses since its inception. The company’s Altman-Z score is -22.9, which indicates extreme distress. Anything under 1.81 indicates bankruptcy is a serious possibility.
Twinlab Consolidated Holdings (TLCC)
If you take nutritional supplements, there’s a decent chance you’ll be familiar with the next company on this bankruptcy list. TwinLabs sells supplements and has been active in the nutrition space since 1968. In the company’s most recent 10-Q filing it raised questions about its own ability to continue as a going concern. Shares are traded on the pink markets at a current price of 10 cents. Given that larger, more well-known vitamin retailer GNC filed for bankruptcy and Twinlab has raised its own warnings, signs look dire. GNC will close more than 1,000 of its brick-and-mortar locations.
CBL & Associates Properties (CBL)
Technically CBL & Associates is not on bankruptcy watch as it has already signaled its intent to file for Chapter 11 protection on Oct. 1. Under the agreement $900 million of debt and $600 million of other obligations were eliminated. Maturity on other outstanding debt was pushed out to later dates. As a commercial real estate investment trust operating commercial mortgages it was particularly hurt by the pandemic. CBL CEO Stephen D. Lebovitz was positive regarding restructuring, stating: “We also appreciate the confidence in the CBL organization and leadership team shown by the noteholders as we’ve worked collaboratively to find a solution that benefits all company stakeholders. Our goal is for this process to proceed as smoothly and as quickly as possible with no disruption to CBL’s operations. Once the process is complete, we will emerge as a stronger and more stable company, with an enhanced ability to execute on our key strategies of diversifying our sources of revenue and transforming our properties from traditional enclosed malls to suburban town centers. As a result, we will be better positioned to grow our business over the near and long term.” However, CBL stock has remained in the 20 cent range even after the news. So while the company likely has the financing to continue operations into the future, investors are not impressed that the restructuring will lead to positive results moving forward. This doesn’t bode well for the company as other companies nearing bankruptcy have seen a lot of investor interest during the pandemic.
Dave & Buster’s (PLAY)
PLAY stock recently jumped on news that a few analysts rated it a buy. Such news can easily spur a buying run by the markets. But the company has the same problems it had prior to that vote of confidence. In fact, the issues have been magnified due to the pandemic. “The hospitality industry has been and will be hit the hardest by the pandemic,” wrote Antoinette Tessmer, professor of practice in the Finance Department, Broad College of Business, Michigan State University, in an email to InvestorPlace. “Think of what our families have done over the last six months: we cancelled vacations, we restrain from eating out, we avoid large crowds and unfamiliar surroundings. Think of how conducting business has evolved in the last six months: we work from and eat at home, virtual meetings are the new normal, we do not “travel for business” any longer. Those behaviors have directly impacted restaurants, hotels, casinos, resorts, i.e., the hospitality industry.” The company is in a period of volatility and has warned that it needs to restructure debt. As per Dave & Buster’s most recent 10-Q filing, it has $224 million in cash and equivalents, and $731 million in long-term debt. In the current operating environment such imbalances can spiral. It reported an operating income loss of $142.5 million through Aug. 2. Total comprehensive income was $68 million through the 26 weeks prior to Aug. 2, 2019 for the firm. In the same period in 2020 debt has increased by $99 million. That means the company has to have a 26 week period to erase roughly $70 million of that $99 million. The company would then be $30 million short of erasing new debt. Despite the trading volatility that has seen PLAY stock pop, investors should be aware that the company is getting worse, not better. All of that long-term debt is more than a minor problem. It is cause for a company to become insolvent. Dave & Buster’s has stated going concern issues and essentially needs that debt to be forgiven, and or restructured. But then what? It isn’t exactly the sexiest company is it? Arcades and fast casual dining are lots of fun, but not exactly an area ripe for investment returns.
AMC Theatres (AMC)
AMC opened over 35 theatres last week and has more than 460 open nationwide. This is of course a positive from a revenue and operational perspective. The company is highlighting its cleanliness standards amid the pandemic stating: “AMC is coming off our most successful weekend since reopening, thanks in large part to Warner Bros. release of TENET. And now, with more than 35 more AMC theatres opening this week, we will be showing movies in nearly 80 percent of our U.S. circuit. That is another encouraging sign that our industry is beginning its way back … [N]ew AMC Safe & Clean safety protocols are clearly resonating with our guests. We’re seeing record-high guest scores for the cleanliness of our theatres, far exceeding the marks we’ve received in the decades we’ve been tracking guest feedback.” Yet, the company has serious problems that extend beyond the coronavirus. And that issue makes it one of the next potential bankrupt companies to watch. To be sure, the company’s problems have been exacerbated by the pandemic, but they existed long before. AMC stock will benefit by adhering to new cleanliness standards. But the company must tackle debt. Based on the figures that I see, that may be impossible. AMC has massive corporate debt and massive operating lease liabilities. Based on cash flows and current cash on hand, the math looks murky at best. In fact, it looks downright bad. Simply consider the firm’s operating activity cash flows as they relate to debt and lease liabilities and as an investor you’ll see why this firm is on bankruptcy watch. Last year (2019) was a very bad year for AMC. This year has been an absolute catastrophe. In the first six months of 2019, AMC showed an operating loss of $80.8 million. Pretty bad. It then had $265 million in cash and corporate debt of $4.73 billion. Operating lease liabilities were nearly $5 billion at that time. The company now has nearly $500 million in cash. But the $80.8 million loss it posted in the first half of 2019 looks like nothing now. The company posted a net operating loss of $2.73 billion in the first half of 2020. AMC’s accumulated deficit for the first half of 2020 is $3.46 billion. That’s a lot of movie tickets, popcorn and soda that needs to be sold. Joking aside, it seems insurmountable. On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
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7/7 SLIDES
Signs of hope are scarce indeed for the legacy company. Using a finer lens, GE stock is weathering a swan dive of 45% this year. To be fair, investor nausea exacerbated in mid-February the same time the novel coronavirus walloped stocks in sectors from entertainment to dining to manufacturing.
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Fraught with Fraud Allegations
Given GE’s long, long history and market capitalization of roughly $57 billion, a solid argument could be made that investors “buying the bottom” could end up on top post-Covid-19.
One: GE suffered its only pummeling this year over a month when Covid-19 first set in. Two: GE stock shot up 80% between December 2018 and February 2020. And three: that 2017 climb began when GE was priced at a similar $7 per share. For us puckish types, that’s just a buck more than one of those funky GE 25-watt bulbs with the stained-glass pattern. Groovy, babe.
And yet, you’d be a fool to make a long-term bet on GE. Its pension woes are well documented. So are its troubles with covering long-term care insurance policies out of its insurance business unit. And the worst thing a company on the ropes needs is a highly publicized fraud allegation, which came last year.
Harry Markopolos — the whistleblower who revealed Bernie Madoff’s Ponzi scheme — released a scathing 175-page report in August 2019 that alleged financial manipulations amounting to “a bigger fraud than Enron.”
For the record, GE chairman and CEO Larry Culp vigorously denied those allegations, characterizing them attempted market manipulation. Hey, but does anyone expect a CEO under such fire to say, “Yup, it’s all true.”? Or even half true? Or a teeny-weeny-weeny bit true? Come on. And if the guy who snagged Madoff is behind the whistle, and has 175 pages to back up his case, I would not bet against him.
Stay Far, Far Away from General Electric
Nor would I bet on GE stock. It’s one of those rare instances where I don’t give a hoot what Wall Street analysts say, or my InvestorPlace colleagues, if they’re arguing a case for this company. It’s one thing to walk into a lion’s den — but quite another where feds might be waiting with handcuffs.
My job here is not — absolutely not — to try GE on these pages. Rather, I need to point out wherever I see what looks like investor quicksand before you get that sinking feeling. GE today is not the GE of its remarkable history. And on three key touchstones — C-suite leadership, evidence of a financial turnaround and a clean bill of health from corporate watchdogs — it is failing miserably.
Do not compound that misery by putting your hard-earned money here. I can’t help but think that if Edison were around today, as much as it might pain him, he’d say the same thing.
On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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