Big Stocks Under a Buck

by: Kirk Shinkle December 03, 2008 | about stocks: CHTR / FNM / FRE / LVLT / SIRI / TMA    

Kirk Shinkle

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Douglas A. McIntyre at 24/7 Wall Street rounds up a sobering list of big-name stocks that have fallen below $1 a share, plus a few that could be headed that way. His list, their recent prices, and their 52-week highs below.

  • Thornburg Mortgage. (TMA) Current price: 26 cents. 52-week high: $140.50.
  • Fannie Mae. (FNM) 83 cents. $40.45.
  • Freddie Mac (FRE) 82 cents. $37.18.
  • Sirius XM Radio (SIRI) 18 cents. $3.94.
  • Level 3 (LVLT) 82 cents. $4.48.
  • Charter Communications (CHTR) 17 cents. $1.67.

Names that could still meet their break-the-buck fate? Ford (F), Citigroup (C), Sprint (S), The New York Times (NYT), and ETrade (EFTC) -- a list that would've looked like the top holdings of a pretty conservative mutual fund 18 months ago.

The common devastating thread in the businesses above is the credit crisis, either directly (exposure to risky mortgages) or indirectly (difficulty refinancing debt). As McIntyre says:

The lesson that Wall St. can take from this is that a prolonged lack of access to credit and an ongoing banking and housing crisis could take shares in a number of other very well-known companies into the pennies which will make them candidates for delisting and wild price swings from day traders moving in and out of the shares.

While credit markets have improved from the October panic, they're still showing signs of distress (see this 3-year chart of the TED spread) at the same time tighter lending could be spreading into the consumer sector. The worst could be over, but it's too soon to expect a turnaround.

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This article has 20 comments:

  •  
    Dec 03 03:30 PM
    Oh yeah...

    Douglas A. McIntyre...he's a real genius, let me tell ya. Great non-article!
    Reply | Link to Comment
  •  
    Dec 03 03:54 PM
    This article would have been better served with the timings of Debt refinancing, and the year over performance of the Companies. I'm pretty sure that there is no financial institution that would let one of their Debtors fail. The credo "You'll never go broke as long as someone owes you money", will be one of the defining factors in the refinance. The forced sale of assets to meet debt obligations that pre-crash were obviously going to be refinanced is insane. With the exception of financials themselves, the business models of the above mentioned companies is not buying magic beans for profit. Look at the financials of any of these companies over the last two years. The trimming of expenses will show up on the balance sheets. Consumer confidence does not have to rise for the companies to survive. The attack plan that is playing out deals with the realistic "NO GROWTH". The Financials are hurting now, due to the ARM interest rates becoming too high for any consumer to be able to pay their mortgage. In the past, the financials counted on those losses to get an easy payday with instant appreciation of housing prices. The economy has been (and always will be) cycical in nature. The company leaders that loose sight of that aspect will also drive their company in the ground. There are always blossoming industries, even in the most dire economic times. The fact that a company can strengthen it's business model during these times, is a telling tale of strong management.
    Reply | Link to Comment
  •  
    Dec 03 04:30 PM
    if you vote for a Rev. split on Siri, the same fate will await you that has fallen upon TMA shareholders----delist... after a rev. split. Someone made money off of the TMA debacle--the shorts!!!
    Reply | Link to Comment
  •  
    Dec 03 04:51 PM
    The TMA shareholders took a chance with the financial community. Sub-prime loans were the cause of the down fall. The inability to provide loans (services) is why investors are running away from TMA. The product for TMA is money, and without modney there is no viable businesss model. You can't get something for nothing. The current financial market is an echo of the S&L debacle years ago. The government made the mistake of letting Lehman Brothers fail. That failure sent a signal of no confidence to public in general. Lehman Brothers assets were quickly scooped up by rival firms, letting Lehman investors out in the cold. The Financials that are left wont be able to absorb any more "BIG" failures. Hank & Ben got caught flat footed.
    Reply | Link to Comment
  •  
    Dec 03 06:27 PM
    ----Thornburg Mortgage (TMA) was just suspended from trading on the NYSE. Its price has been below $1 for too long. It trades at $.30. Extraordinary, because it 52-week high is $140.50.----

    The above is Doug McIntyre's opening line to Shinkle's referenced article on 24/7.

    Below is a more in depth explanation of TMA's delisting from the NYSE.

    ------(TMA), Thornburg's stock price failed to meet a minimum standard earlier this year that its average closing price remain above $1 over 30 consecutive trading days. Thornburg had six months to correct the problem, but was unable to do so.

    Shares of Thornburg closed Tuesday at 30 cents.

    Thornburg said the delisting does not constitute a default under lending agreements.

    Thornburg has been hit hard since the middle of 2007 by the ongoing mortgage and credit market turmoil. Not only has mortgage lending volume declined, Thornburg has been forced to drastically reduce the value of its investments in mortgage securities as investors have shied away from purchasing all but the safest forms of debt.-----------

    Mortgage Securities would be sub prime, mortgage backed securities, that are currently being written off by most financial institutions and also lead to the Bear Sterns debacle... How does one compare this to Sirius Xm Radio???
    Reply | Link to Comment
  •  
    Dec 03 06:31 PM
    In addition TMA executed a RS at the end of October and issued new shares to pay debt, no cash, on Nov 1st this year, before being notified of being delisted from NYSE not NASDAQ.
    Reply | Link to Comment
  •  
    Dec 03 09:52 PM
    something to think about
    Reply | Link to Comment
  •  
    Dec 03 10:36 PM
    here's the connection of SIRI to TMA----TMA thought a RS would be a viable tool for it's stock not being delisted. They were dead wrong! the stock was originally at .39-45 cents. With the RS it went to 4 or 5 bucks. This was quickly shorted (no uptick rule) back to where it is now. Why give Mel a dangerous tool in a dangerous environment? TMA could have done without the RS. SIRI doesn't need a RS. Both TMA and SIRI don't have the public's confidence, which is needed for a RS to be successful.
    Reply | Link to Comment
  •  
    Dec 04 12:26 AM
    Fnm : Not Worth investment, the fate of the company is in politicians hands.
    Fre: Same
    Siri: Junk, - 3 billion stockholer deficit..
    Ford: No Opinion
    Citigroup : CEO's will never look out for interest of shareholders.
    ETFC: If it qualifies for TARP, strong chance of survival with its retail segment showing strength. Donald layton has made excellent calls, such as selling its FNM and FRE investments before it got took over. If it doesn't qualify, lets hope creditors stay on its side.
    Reply | Link to Comment
  •  
    Dec 04 02:54 AM
    Apparently the Treasury and Fed think making garbage zombie public companies that aren't public is better than letting them go bankrupt and cleaning up the mess. Now Fannie and Freddie are about to be used to give crap loans to people who otherwise couldn't afford them at 4.5% backed by Federal government incentives and guarantees.

    I'm scratching my head at this one. Didn't we do this already? Ummm, isn't this what caused the current crisis. Will Paulson and Bernake get their heads out of that dark place I won't name.

    Well the article should have been companies that may be trading at $1. I can think of a few. Anyone asking or getting government funds. Your companies are dead even if they are still walking. How about GM, AIG, and all the student loan companies to start.
    Reply | Link to Comment
  •  
    Dec 05 06:20 AM
    Does Etrade still allow people to open MARGIN account on a credit card ?
    Reply | Link to Comment
  •  
    Dec 05 08:59 AM
    don't think so. E Trade are fast becoming a disreputable entity. I bought some Ford stock at $3 and change (yeah, I know). It started to drop rapidly. They closed me out at $2 and change. They did the same thing with another stock that I had that was dropping. I don't trust them. They are in big trouble financially - and selling the stock without your permission is so very annoying. Things are great when we're all making money, but these days they harbour no risk.


    On Dec 05 06:20 AM James Wilson wrote:

    > Does Etrade still allow people to open MARGIN account on a credit
    > card ?
    Reply | Link to Comment
  •  
    Dec 05 12:58 PM
    I recently read that the gov’t is thinking of stepping in an forcing interest rates on new home loans to drop to 4.5% … this got me a bit angry. This penalizes those who “played by the rules” and bought homes they could afford and fixed rates either before the bubble or after the bubble began to burst and go downhill.

    Moreover, if all the bailout money is going to the banks, but the banks are failing to do the right thing, maybe a re-think is needed as to the interventions required to turn this economy around?

    Assume there are about 60 million homes owned in the U.S. (I’m not sure as to the exact number). Assume that of these, 40 million are the primary residence of an owner (i.e., not a second home, beach house, etc.)

    What if instead of bailing out the banks, which are aren’t willing to lend it to new homebuyers, for fear of a negative equity spiral, the gov’t stepped in and made loans at 0% interest for all primary residences sufficient to cover the next 1-2 years of mortgage payments associated with those homes.

    For those homes showing signs where the owners had trouble making payments, the gov’t works with them to start a savings plan that allows them to use this “grace period” to catch-up on their payments – and at the same time the gov’t actively works with the bank to find a better payment amount the owners can afford by extending the length of the loan (say, from 30 years to 40 years) in return for a loan interest rate.

    The government money would eventually have to be repaid by the owners, but at smaller amounts over a longer period.

    Moreover, for those who “played by the rules” they could use this grace period on their home loans either to (1) continue to make their own mortgage payments to return the loan principal – effectively benefitting them, and/or (2) buy some consumer goods to stimulate the economy with money they would have used for their mortgage payments.

    Of course, the amount loaned at 0% as a “grace period” on home mortgages would need to be proportional to when the home was bought and how much the home was bought for, but making a grace-period for 1-2 years at 0%, eventually payable say in 10-15 years (whereupon if it’s not paid, then the rate started to go up) wouldn’t penalize anyone and would offset those homes that have negative equity.

    The gov’t has an obligation to avoid moral hazards. Don’t penalize those who played by the rules before, during, and after the bubble… find a solution that helps both those that needs help and allows those who played by the rules to not be punished but, in fact, contribute to the economy rebound.

    Thoughts?

    Reply | Link to Comment
  •  
    Dec 05 01:09 PM
    Ford, or most others in similar gravity affirming states, purchased on margin would likely result in same sale elsewhere as well. What other equity was in the ETrade margin A/C? Volatility is more dangerous for names skimming the waves than at higher altitudes.
    Reply | Link to Comment
  •  
    Dec 05 01:49 PM
    I took a gamble and bought 1000 shares of Fannie at 0.95 a share, because I don't think either party has enough political will to lose them. They are a pretty valuable tool to use without congressional approval.

    I'm waiting for IBC (Hostess/Dolly Madison) to get out of bankruptcy in February and buy their stock. I'd gamble on GM if I knew Congress was going to help them out.
    Reply | Link to Comment
  •  
    Dec 05 01:50 PM
    Bababooie:

    "The TMA shareholders took a chance with the financial community. Sub-prime loans were the cause of the down fall. The inability to provide loans (services) is why investors are running away from TMA."

    You obviously know nothing about TMA. This REIT is one of the best originators of PRIME mortgages in the world. They have the best delinquency ratios in the business and no subprime loans. They thought they were match funded because their loan portfolio was ARMs (not Option ARMs)and their leveraged financing was short-term LIBOR based repos. The interest rates were matched but the maturities were not. They were killed when the market repriced all real estate securities down and they suffered margin calls on their repo financing.

    Now they have a portfolio of great securities, that will eventually pay off at close to 100%, on their books at 80%. Their stock will take off IF they can 1) avoid bankruptcy, which would be a terrible option because these great securities would be liquidated in a terrible market, and 2) avoid too much stock dilution. (Their lenders are extracting stock and warrants at every turn). The return of the real estate market to normalcy would be nice but is not required for success.
    Reply | Link to Comment
  •  
    Dec 05 01:52 PM
    Diane, I'd rather they give the next 350 billion to every adult American. I promise to start spending my share immediately.
    Reply | Link to Comment
  •  
    Dec 06 02:47 PM
    I am a serious holder of SIRI stock and am a firm believer in a deverse portfolio. That being said i have a very interesting stock that may interest some. XDSL. This company has developed a breakthrough in battery technology and will be announcing a partnership with a major player within two weeks that will drive their product to the global market. On friday, the news of this drove the stock up 175% and i think once the major player is announced that this stock will rise quickly. Even with the quick rise this stock is still at .04 from .0145. If anyone does some homework on this and sees anything i missed let me know here. Also please let us know of any other stock that can be looked at. At this point i have a lot on this stock to recover and am always interested in tips and research finds.
    Reply | Link to Comment
  •  
    Dec 09 04:13 PM
    I've just got back into the market, not overly sophisticated as a trader, but am I understanding you guys correctly in that I should get close out my Etrade account and open a new one with someone else? Any and all of your thoughts would be helpfull.
    Thanks...
    Reply | Link to Comment
  •  
    Dec 10 04:51 PM
    I my self just deposited some dough in Etrade. Should I get out after my 30 days of free trading is done? if so, where next? ameritrade? scott?
    Reply | Link to Comment
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