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As Hertz Gets Delisted, It Does Not Belong In Long-Term Portfolios

Vehicle rental company Hertz Global (OTCMKTS:HTZGQ) and Hertz stock is no longer traded on the New York Stock Exchange. On Oct. 29, Intercontinental Exchange (NYSE:ICE), which owns the NYSE announced, “the staff of NYSE Regulation has determined to suspend trading in the common stock of Hertz Global Holdings, Inc. (the “Company”) — ticker symbol HTZ — from the NYSE.”

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The pandemic had a significant effect on a number of sectors, such as travel and leisure. The car rental sector relies heavily on air travel as many passengers rent vehicles at airports. Recent research has studied the “Impact of COVID-19 on Global Car Rental Industry and Ride and Share Transport Services.”

The authors highlight, “The pandemic led to Hertz filing for bankruptcy, albeit after paying US$16 million in retention bonuses on the eve of bankruptcy to its executives. Losses led to various cost-containment measures, which saw a record number of employees being laid off and disposal of non-core assets.”

Florida-based Hertz Global is more than 100 years old. Its vehicle rental brands worldwide include Hertz, Dollar and Thrifty. When a publicly-listed and well-established company like Hertz declares bankruptcy, it is not always emotionally or financially easy for shareholders to accept what that means for the common stock. Therefore, today’s article will discuss what investors in Hertz stock may expect in future months.

Shareholders Have the Last Claim

Not every travel or car rental company has gone bust during the pandemic. For example, Avis (NASDAQ:CAR) is up more than 12% year-to-date.

Steve Ford of Advanced Applied Project Management Solutions explains the demise of Hertz clearly: “Hertz had, in recent years, taken on more than $24 billion in debt, primarily due to corporate acquisitions and car purchases. This debt was set against a cash reserve of $1 billion… With the onset of COVID-19 … Hertz lost all revenue.. Unable to pay its creditors, Hertz filed for Chapter 11 bankruptcy protection on May 22, 2020.”

We would add to this analysis that U.S. corporate bankruptcy laws determine who gets paid first. Shareholders have the last claim on assets. In most cases, they receive nothing. contributor Mark R. Hake recently wrote about the delisting of Hertz stock and concluded, “This is an indication that Hertz stock has virtually no value and no one should be buying it… There’s nothing left for owners of HTZ stock.”

Put another way, current investors in Hertz stock are not likely to get any money at the end of the bankruptcy.

Earlier in the year, even billionaire investor Carl Icahn, who used to be the largest shareholder in Hertz stock, sold his holdings, representing a 39% stake in the car rental group.

In the coming weeks, there could still be speculative trading with an up bias in Hertz stock. Yet, current shareholders should not get their hopes high. In fact, on Oct. 16, shares traded intraday between $1.67 and $2.86, on high volume with no apparent news or reason. Suggestions centered around algo program traders and Robinhood speculators. However, the shares are currently around $1.05.

Bottom Line on Hertz Stock

The recent delisting of Hertz stock was a negative development for Hertz shareholders. The group used a complex corporate structure and had extreme levels of debt, which led to insolvency during the rough months of 2020.

Various negotiations and court proceedings leading to Hertz’s eventual bankruptcy will likely take more time. It is also a high-level bankruptcy, getting media attention.

However, current investors in Hertz stock should appreciate that the shares will likely end up worthless. If I were a shareholder, I would sell now and get out completely.

If I were a short-term trader, I would not speculate on Hertz stock. Our markets offer ample opportunities in robust asset classes or stocks both for long-term investors and short-term traders. But Hertz stock is not one of them.

For example, those investors who are interested in speculative companies may consider investing in the high-yield corporate-bond market. They can use exchange-traded funds (ETFs) to buy into these junk bonds. Examples of such ETFs would include the Credit Suisse High Yield Bond Fund (NYSEARCA:DHY), the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEARCA:HYG), or the SPDR Bloomberg Barclays High Yield Bond ETF (NYSEARCA:JNK).

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tezcan Gecgil has worked in investment management for more than two decades in the U.S. and U.K. In addition to formal higher education in the field including a Ph.D, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination.

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