Some companies have such a profoundly obvious trajectory that it almost seems pointless to discuss them any further. In my opinion, beleaguered auto rental firm Hertz Global (OTCMKTS:HTZGQ) belongs in this category. Effects of the novel coronavirus pandemic left Hertz stock on life support. Moreover, management is held hostage to this crisis because, as a derivative business to the transportation industry, the consumer economy must come back strong.
Of course, that’s no guarantee. While we do see encouraging signs, such as a gradual and noticeable increase in air passenger demand, we also are witnessing a trend with an exponentially greater magnitude: new daily coronavirus cases. According to data from the Centers for Disease Control and Prevention, the infection level topped 185,000 on Nov. 19. This brings the seven-day moving average to over 163,000 cases.
If we’re going to get a recovery, the government must control this pandemic ASAP. But that doesn’t look like it will happen, considering that President Donald Trump went AWOL. Therefore, I found it incredibly curious that my colleague David Moadel labeled Hertz stock as possibly a once-in-a-lifetime opportunity.
I’m going to be honest with you. When I first saw that headline, I thought Moadel became the Rudy Giuliani of InvestorPlace, as in completely delusional. Hertz stock as a possible investment? Surely, when he was covering the legal cannabis sector, his hands-on “research” may have been more zealous than usual.
Granted, it wouldn’t be completely out of the question that Hertz stock jumped in the sense that I can’t prove Bigfoot doesn’t exist. Further, Moadel does make an interesting argument that Hertz could be a takeover target at some point, which would boost shares. Still, without hard evidence, it’s extremely difficult to justify such a sensational headline.
Folks, I’m left with two choices: either Moadel is right about Hertz stock or he needs to be institutionalized as a star member of the Trump legal team. Which one is it going to be?
Why Hertz Stock Just Might Work for a Disciplined Trader
Although I was fully prepared to tear into my colleague, by nature, I’m an intellectually curious individual. Because of my open mindedness, I wanted to confirm if there was any merit to what Moadel was suggesting. After all, if you’re going to say something insanely contrarian, there’s got to be a reason for it, right?
Before we dive into this bizarre case, let me start with this. On a fundamental basis, I agree with my other colleague Ian Bezek, who stated that it’s time to let Hertz stock go already. Specifically, Bezek notes that the rental firm “needs billions of dollars to merely be operational. Cars aren’t cheap, and they depreciate quickly. Hertz can’t just wait for the coronavirus to blow over; it owes billions of dollars that have to be dealt with now.”
Evidently, Bezek will not be anywhere near the Trump legal team. He’s making too much sense.
But sometimes, the market can be irrational long enough for you to make profits through unorthodox methodologies. And that’s where, if speculation runs deep in your blood, you could potentially make gobs of cash betting on HTZGQ. Here’s how.
A Clear Bias
In a typical index or security, the day-to-day performance fluctuations are within a tight range. But this year, Hertz stock has a clear and unmistakable bias depending on what day of the week it is. Through data analytics, I discovered that on Tuesdays, HTZGQ averages a daily performance of -3.5%. On Fridays, though, shares average 3.61%.
Because this spread is so steep, it is possible, assuming that this pattern holds for the foreseeable future, that you can set up a trading system where you buy shares on Tuesday, sell on Friday and redistribute the entire total back into the following Tuesday, thereby repeating the process.
Theoretically, here are some scenarios to consider:
- If you put in $1,000 in Hertz stock on May 26 and applied the buy Tuesday/sell Friday system (selling a day earlier for Friday holidays), you would have ended up with $5,291 on Nov. 20.
- If you put in $1,000 on June 12, you would have $1,440 on Nov. 20.
- If you put in $1,000 on July 24, you would have $1,071 on Nov. 20.
Further, this methodology would be superior to just putting in $1,000 and letting it ride out. For instance, 10 Benjamins on May 26 would yield “just” 20 Benjis on Nov. 20 if you were merely long throughout the period.
On the surface, this appears a compelling trade. But should you go for it?
Not for the Uninitiated
If you’re among the 99% of retail investors out there, the answer is a firm no. At this point in the game, Hertz stock isn’t an investment. It’s a gamble. And gambling is a different discipline than investing. You shouldn’t get the two mixed up.
Sure, you could play around with the above system to improve your chances. For instance, you could sell on Monday instead of Friday, which statistically should give you better odds of success. As well, you can choose which Tuesdays to bet on, thereby avoiding some weeks altogether.
But this crazy system requires that the pattern holds. If it doesn’t, and Hertz stock craters into the pennies, you’re not going to be too happy. Moreover, you must keep in mind that transaction costs can eat into your profits. Also, don’t forget that trading too frequently could make you a day trader, putting you into distinct tax categorizations.
Ultimately, I would not recommend this course of action because it’s fraught with risk. However, Moadel is technically correct. There is a path to shareholder profitability for Hertz stock. It’s just not a comfortable one.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.