This Stock Is Going to Zero, and You Know It
BB Liquidating Company (BLIAQ.PK) is the discarded husk of former video rental king Blockbuster. The company ran into a digital brick wall, failed to compete, and filed for Chapter 11 bankruptcy protection. Now all its assets belong to Dish Network (NAS: DISH) , while the stock went through two ticker changes on its way toward oblivion.
And that's exactly where Blockbuster -- sorry, BB Liquidation -- belongs. The stock now has nothing whatsoever to do with Blockbuster's business, assets, or even the trade name, and is explicitly worth absolutely nothing. The original restructuring plan provided no hope at all for shareholders: "There would be no recovery by the holders of the Company's outstanding subordinated debt, preferred stock or common stock," the early filings said.
That's right -- you, the common shareholder, get nothing.
So why am I dredging up this ghost of markets past? Because another well-known stock is headed down the same road right now. MF Global (NYS: MF) has filed for the same Chapter 11 protection that Blockbuster went through, the company's "primary dealer" status on New York commodity exchanges has been suspended, and so has the stock itself. Oh, and millions of dollars' worth of customer money has reportedly gone missing. That'll have to get sorted out, too.
Like Blockbuster before it, MF Global's stock is inevitably going to zero now.
Zero, zilch, nada, nothing!
Businesses going through bankruptcy are worth nothing to us common investors. If anybody gets paid at all, that would be senior bondholders, lease landlords, and others with a contractual pipeline into the poor company's pocketbook. Your shares will be written off and worth nothing.
If MF Global ever comes back to the open market, that would probably be under a whole new batch of stock certificates that have nothing to do with the papers you hold today. Best-case scenario: You'll get replacement shares worth a small fraction of their original value. It'll take the mother of all turnarounds to generate a positive return after a conversion like that.
The jury is still out on MF's trading strategies, because the European sovereign debt on which the company bet big money could still turn out all right. But those papers have been underwater for so long that MF's positions have started firing off margin calls that the company can't handle, so whatever good news we get now will be far too late. Global's saving grace won't deliver until the coming Chapter 11 reorganization is but a distant memory.
Fun fact: The last recorded trade of Circuit City shares happened a month ago, even though shares were "deemed canceled" last November. It takes awhile to exorcise these ghosts.
Crazy, but it's true
Yet people still trade Blockbuster stock in spite of all the risks with absolutely no upside, and will probably do the same with MF Global once the SEC lifts the trading block. Day traders can luck out and make a buck here and there as share prices gyrate through wild swings -- a price change of a single dime is an 8.3% move when you're starting from $1.20 per share, as MF currently is. But even those hustlers will be left holding an empty bag when the bankruptcy filing comes.
To quote fellow Fool Chuck Saletta talking about the old General Motors (NYS: GM) shares, Motors Liquidation Company, there's really only one logical explanation for this madness: "The market is nuts."
Here's the pudding
The long-term weighing machine that is the market goes completely bonkers in the short term. The fact that Blockbuster shares are actively trading hands even a year after the bankruptcy specter raised its ugly head is just another data point to prove that maxim. And if you need more evidence, take a look at these insane market value swings:
E-Commerce China Dangdang (NYS: DANG)
Amarin (NAS: AMRN)
Travelzoo (NAS: TZOO)
Dendreon (NAS: DNDN)
Source: Google Finance.
Dangdang fell off an insanely lofty valuation when its publishing business started to show structural cracks and still trades near the bottom of this dramatic yearly trading range. Amarin raced ahead when its potential cardiovascular blockbuster drug, AMR101, seemed destined for fast-track FDA approval. Official Rule Breaker Travelzoo drew favorable comparisons to deal-handler Groupon in the spring but has failed to deliver on that promise in 2011. Right now, the company looks like dirt cheap buyout bait. And cancer-drug researcher Dendreon got a 65% haircut after one disappointing quarterly report. Contrarian Fool Jim Mueller bought shares at the new, lower prices on the theory that the business isn't broken -- just the stock.
MF Global actually takes the cake by falling from $9.28 to $0.99 per share -- an 837% value span in fewer than 10 months. And the worst is yet to come, because the stock is already totally worthless even if gamblers continue to trade it.
Some of these stocks are going up; others way down. The motivations behind the moves range from obvious to ridiculous.
What they all have in common is drastic changes in the value of their businesses -- sometimes real and sometimes perceived. In a completely rational market where every investor had a complete set of correct business information, these sudden swings wouldn't exist. But we don't, so they do. And these crazy swings create both pains and gains along the way. Don't forget your seat belt.
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At the time this article was published Fool contributor Anders Bylund holds no position in any of the companies mentioned. The Motley Fool owns shares of Dendreon. Motley Fool newsletter services have recommended buying shares of Travelzoo and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.