Playboy Enterprises announced some rough financial results last week, and its stock fell 56 cents in a day.
No big deal, right? What’s a couple of quarters, a nickel and a penny in a wild market like this?
Pennies mean a lot these days at a surprising number of Chicago-area businesses. At least 17 of the area’s public companies were trading below $10 a share as of Friday, with some creeping perilously close to zero.
When stocks trade in the single digits, a seemingly small move has an outsize impact. So the drop that followed Playboy’s warning on Thursday about a rough advertising environment represented a stunning 23 percent loss in the shares.
By the same token, when a low-priced stock goes up, the rewards for gutsy investors can be equally magnified.
It’s a trader’s dream, but also a tough call for veteran portfolio managers such as Douglas Nardi from the Chicago office of investment counselor Legg Mason Inc.
“When you get a stock below $10, if it’s market-induced because everything’s falling down, that’s an opportunity,” Nardi said. If the stock plunges because of doubts about its future viability, however, “that’s a little dicier,” he said. “The market’s telling you something, and you’d better listen. A dog’s a dog.”
Motorola ranks among Chicago’s great brands, but its mobile phone division is in big trouble.
Dog or no dog at $4.79 per share?
How about mall owner General Growth Properties, staggering under an enormous debt load? It’s on sale at $2.07 per share. Or Brunswick Corp., which isn’t selling a lot of yachts, as reflected in its stock price of $3.50.
If only investors could know what will happen instead of what already did. Nardi, for one, still thinks about the aftermath of the dot-com bust at the beginning of this decade, when some high-quality companies were trading at a few bucks.
Maybe the Chicago stocks selling for single digits will bounce back from their lows in the manner of once-lowly technology issues such as Juniper Networks. Or, maybe, a Pets.com is waiting to bite the investor who tempts fate by playing with the dogs.
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Trading low These Chicago-area companies were trading below $10 a share as of Friday: %% Company 52-week high Friday close Motorola $17.30 $4.79 Old Republic $17.25 $8.93 Tellabs $8.20 $3.76 General Growth $51.24 $2.07 Brunswick $22.69 $3.50 Smurfit-Stone $11.65 $1.17 Playboy $10.98 $1.94 Amcore Financial $24.27 $3.95 Corus Bankshares $13.16 $2.10 Hartmarx $4.92 $0.40 Material Sciences $9.45 $3.20 Midwest Banc $14.14 $3.35 OfficeMax $27.43 $5.25 Orbitz Worldwide $10.00 $3.19 Quixote $20.25 $6.61 Strategic Hotels $19.95 $3.37 Tenneco $33.46 $3.91 %% ———-