Zombie stocks make a killing
Posted
Sep 24 2009, 02:13 PM
by
Kim Peterson
Rating:
Traders are hot on zombie stocks these days, trying to make a buck from companies everyone else has written off as dead.
Washington Mutual went bankrupt, but its stock is suddenly smoking -- gaining 64% Monday, the Los Angeles Times reports. No one really thinks the company is going to magically return to life soon, but investors are hoping even a tiny uptick in the share price will bring profits.
Remember Lehman Brothers? Shares of the bankrupt bank have quintupled in the last four weeks, the Times reports. And General Motors -- or, should I say, Motors Liquidation Co. (MTLQQ) -- has seen shares more than double.
It's a dangerous game, playing around in these stocks that common sense would tell you to stay away from. So who's dabbling in the dead?
Experts tell the Times that aggressive day traders are likely to blame. They're snapping up enormous volumes of the shares, looking for something as small as a 1-cent increase on a 1 million share block.
The economy has devastated some of the market's best-known names, creating a new breed of what the Times describes as "blue-penny stocks" (a blue-chip that has become a penny stock).
"You look at this using conventional valuation metrics and it makes no sense," one equity risk manager told the Times. "There's suddenly a huge potential for profit in these essentially worthless companies."
Related reading:
4 zombie stocks better off dead
The new hot stock? AIG
Secrets behind Lehman's collapse
Stampeding into bonds
