It seems appropriate that investors have made some really puzzling moves in the year of the special purpose acquisition company or SPAC. One of the top “dumb” investments has to be the frenzy over Eastman Kodak (NYSE:KODK) and Kodak stock.
There have been a lot of bad moves this year. Here are my top five.
Kodak Stock Is Right Near the Top
Investors have short memories. How do I know? Kodak’s recent history ought to provide a clue.
In January 2012, Kodak filed for Chapter 11 bankruptcy protection with $5.1 billion in assets and $6.8 billion in liabilities. Like most bankruptcy proceedings, creditors took it on the chin with $4.1 billion of the debt eliminated under its plan to exit bankruptcy.
Kodak emerged from bankruptcy in September 2013, 19 months after it filed Chapter 11.
“In his closing statement Judge Gropper remarked that the collapse of Kodak was ‘a tragedy of American economic life.’ Indeed, the failure of Kodak is a striking one,” Financier Worldwide reported in October 2013.
“In 2003 the company posted revenue of around $13.3bn while employing a work force of around 64,000. By 2011, the number of employees had shrunk to around 17,000 and revenue to $6bn. The firm also closed 13 factories and 130 photo laboratories.”
It’s not as if Kodak came out of bankruptcy with a disruptive business model. Yet, some investors bought what it was selling lock, stock and barrel.
Flashforward to 2020.
Kodak stock investors bought some more razzle-dazzle from the Rochester-based company. Apparently, it’s now a pharmaceutical chemical manufacturer. Next week, maybe it will have a vaccine for the novel coronavirus.
As InvestorPlace’s Matt McCall said recently, “Avoid Kodak stock at all costs.”
It Hurts to Own Hertz
In June, I wrote about a Morgan Stanley analyst who said Hertz (OTC:HTZGQ) stock was likely worthless. Not a real shocker given Carl Icahn lost more than a billion on the car rental company.
Yet retail investors continued to pour into its stock. Perhaps getting shunted to the OTC Bulletin Board will scare a few punters from laying down a very risky bet.
Here’s my summation in June about the company:
“Quite simply, the Hertz case is the modern-day version of ‘I’ve got some Florida swampland to sell you.’ It’s a sad commentary on the markets and society in general,” I wrote on June 25.
Loan or no loan, Hertz stock is not getting out of this alive.
Whiting Pete Gets Wiped
It’s not been a good year for energy stocks. It was a terrible year if you owned some of the old shares of Whiting Petroleum (NYSE:WLL), which entered bankruptcy protection in April and emerged from bankruptcy in early September.
One of the rare examples where equity shareholders managed to get something for their trouble, Whiting shareholders got one new WLL share for 75 old ones. That’s good for a 3% ownership stake.
So, let’s say you invested $1,000 in Whiting in September 2018 at $50 a share. At the end of the September quarter that year, it had 91 million shares outstanding for a market capitalization of $4.6 billion. Post-bankruptcy, Whiting had 38.1 million shares outstanding for a market cap of $533.0 million.
Over the past two years, shareholders who’ve held on have seen their investment shrink by 76%.
In June, I suggested that Whiting shareholders could have seen the writing on the wall. If you still own post-bankruptcy, for starters, you might want to move on to something outside the oil & gas industry.
Two Additional Choices
My first selection is a stock I’ve disliked for some time. Despite what all the dividend lovers have to say about AT&T (NYSE:T), I consider it a major disappointment in 2020.
Down 26.2% year to date through Oct. 29, it’s a stock that’s been sputtering for more than a decade. In fact, if not for that juicy dividend it pays, the wireless carrier’s stock would have a negative return over the past 10 years. As it is, AT&T’s annualized total return of 4.8% over the past decade is about a third of the return of the entire U.S. markets.
In January 2019, when AT&T stock was trading around $30, I said its 7%+ dividend yield wasn’t worth it. Almost two years later and yielding 7.8%, it’s still not worth it.
“I’ve been skeptical of AT&T’s purchase of Time Warner for many reasons. In July, I wrote about seven of them,” I wrote on Jan. 9, 2019.
“Chasing yield is a dangerous game. In my opinion, AT&Ts 7%+ yield isn’t worth it. You’re better off finding something with half the yield and twice the potential.”
My last choice goes to the shareholders of Occidental Petroleum (NYSE:OXY), Warren Buffett included.
When Buffett helped Occidental buy Anadarko Petroleum in August 2019, OXY stock was trading at approximately $51. Today, it’s worth one-sixth of the value.
In August, Buffett sold the stock Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) received from Occidental for the quarterly dividend payment on $10 billion in preferred shares Berkshire received from 2019’s acquisition.
The warrants, which were the kicker for getting Buffett to invest, have an exercise price of $59.62. This means that OXY has to appreciate by 568% before Berkshire’s in the money.
As I said in August, Occidental chief executive officer Vicky Hollub should be very worried about her job. Recently, InvestorPlace contributor Ian Bezek also had some serious questions about Hollub’s decision-making, suggesting investors stay far away.
I don’t know if this is Buffett’s worst investment of all time, but it’s pretty darn close.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
