Hertz Global Holdings Inc. (NYSE: HTZ) has been an American business fixture since 1918, when Rent-a-Car Co. deployed a fleet of 12 or 13 Ford Model-Ts.
The COVID-19 pandemic may have been the classic "last nail in the coffin," but this company has been on the skids, losing money, for four years running. Over that time, it's been restructured six ways from next Tuesday, we've seen a rapid-fire succession of CEOs, and private equity firms have piled on debt with gusto, adding to its $19 billion debt load.
With travel - and its 700,000-vehicle fleet - at a standstill, Hertz was just out of time, money, and options. After paying out around $16 million in bonuses to executives, it laid off or furloughed around 16,000 workers.
Then, Hertz filed for Chapter 11 bankruptcy last week.
Now, usually, the magic word in a successful bankruptcy is "orderly." I mean, so long as things play out pretty much like the creditors and markets expect, companies can and often do come out of bankruptcy.
But even Hertz's bankruptcy could be chaotic.
A week into it, and there's still no credible restructuring plan. Hertz has told its landlords it won't be paying rent for at least six months. Clearly, Hertz is going to have to start unloading its fleet, but that could create even more pain for the U.S. auto industry, as it would probably pull the rug out from under used car prices.
Wow... How could it get any better?
Now, ordinarily, you'd think, "I'm not touching this stock with a 10-foot pole!" And from a buy and hold perspective, you'd be 100% correct. Billionaire investor Carl Icahn might agree...
Icahn backed Hertz to the hilt! Reuters is reporting he sank $1.88 billion into the stock over the past six years; he just sold his Hertz shares for a whopping $0.72, just about $40 million.
Icahn missed the move I'm about to show you - heck, I'd say 99% of investors did, too.
Today, I'm going to show you how to intelligently assess your risk/reward potential to play Hertz for profit...[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
During the Q3 2019 reporting period in February, before COVID-19 shut everything down, Hertz reported a $0.24 loss per share - and of course it got worse from there.
Because during the Q1 2020 reporting in mid-May, leadership told investors the company had lost an eye-watering $1.78 per share!
The day after that, the stock opened at $0.40 a share. All last week, it traded in a range up to $1.40.
Now, a couple of my subscribers, tempted by what looked like a bargain, began to hit my inbox: "Should I be buying Hertz here?"
I'll tell everyone my answer.
Folks... from wine to stocks, sometimes things are cheap for a reason!
To buy Hertz here, you have to believe that they'll emerge from what's so far been a rough, rough bankruptcy.
They're a big rental company with more than 30,000 locations, and until last month, 38,000 employees. I've heard some people describe it as "too big to fail," but this ain't Bank of America, folks; there are other car rental companies out there.
What's more, they'd have to come out of bankruptcy and keep the same HTZ ticker. That's right: I have seen companies emerge from Chapter 11... after they've killed the stock, driven it to $0.00, and staged a new offering with a new ticker. That's something to think about.
You have to believe all this to pick up shares now.
HTZ was recently trading for $1. That'll cost you $1,000 for 1,000 shares; you're risking $1,000. If the stock hits $2, you'd do a little better than double your money. However, if, as has happened before, the board quashes the stock, you walk away with nothing.
I'm not crazy about that risk/reward picture - it's 1:1.
Options can be a great way to take control of the risk/reward situation...
Two calls to look at here: HTZ Jan. 15, 2021 $1 calls and HTZ Jan. 15, 2021 $1.50 calls.
In this case, you're risking the premium you pay for the call, though your reward is theoretically unlimited. The $1 calls cost about $0.50, as you can see. For 100 contracts - one option - that's $50.
So I'd have between now and Jan. 15, 2021, for the stock to go up. But your breakeven number, which is the stock price plus the premium you paid, is $1.50; it's only $1 on the stock itself.
And if you're not yet signed up for my free Power Profit Trades research service, you can do so by clicking right here...
You could sell puts, too, though this is aggressive. Selling puts is a bullish strategy that will obligate you to purchase the stock at the strike price, so your risk is that the stock goes down to $0. Make sure of your risk tolerance.
However, you get paid a premium for this obligation, and the position comes with a higher probability of profit.
Look at the HTZ Jan. 15, 2021 $1 puts. I'd take in at least $0.65 - $65 for 1 put (100 contracts).
Now, take a look at your breakeven - it's something you don't see often with puts. If the stock is at $1, and your maximum profit is $65, your maximum risk is $35 on the trade!
So Hertz has to stay above $0.35 a share for you to break even. If it goes to $0, you're out $35 per contract. But you've got a 185.71 risk/reward ratio.
As I said, this has risk; there's still a probability Hertz won't come out of Chapter 11, but there are ways to be bullish without buying and holding HTZ.
And in the meantime, don't forget to check out my latest presentation for an instant cash opportunity...
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