A Tuesday article in the Houston Chronicle caught my eye.
Its title was: “$20 per Barrel Oil Sends Energy Companies to Restructuring Specialists in Droves.”
It’s true.
The last time we saw this kind of pain in the oil patch was in the middle of this decade.
From 2015 to 2019, we saw nearly 400 bankruptcies in the space.
If it’s like last time, we’ll see a lot of energy-related bankruptcies. Most companies can’t make money at the current price.
And it’s not just in the oil patch.
You’ve heard the news. Major retailers such as Best Buy, Kohl’s, Burlington Coat Factory, T.J. Maxx and many others have closed their doors for now.
We have very few restaurants open in our town. And those that are only offer carryout or delivery.
Airplanes aren’t flying. Hotels? Closed.
Many of these firms — especially the smaller ones — won’t open again if this continues for many months.
And all of the ones that do will face a tougher financial picture than they started with.
As such, it makes sense to consider firms helping companies that are struggling.
Their stocks will gain 40% or more in this environment.
Bankruptcies Are Confusing … but These 4 Firms Are Here to Help
Houlihan Lokey Inc. (NYSE: HLI) is a leader in the restructuring space.
Last year, it advised on more distressed deals than any other investment bank.
This wasn’t a fluke. From the year 2000 to 2019, Houlihan advised parties in 12 of the 15 largest bankruptcies.
And there are three other bankruptcy firms I want to tell you about who provide similar services.
I expect the stocks of all four of these firms to do well in the months ahead:
| Company | Ticker | Price | Market Cap (billions) | Price change, YTD | Dividend Yield |
| Houlihan Lokey | HLI | $53.68 | $3.5 | 9.8% | 2.3% |
| PJT Partners | PJT | $40.84 | $1.6 | -9.5% | 0.5% |
| Moelis & Company | MC | $27.09 | $1.8 | -13.4% | 7.5% |
| FTI Consulting | FCN | $119.91 | $4.5 | 8.4% | n/a |
(Source: Bloomberg; prices as of 4/1/20)
Pay attention to the price change column. In comparison, the average year-to-date gain of the S&P 500 Index is -24%.
The first three companies have divisions that provide investment banking services to troubled companies. They’ll see major growth.
The final name, FTI Consulting Inc. (NYSE: FCN), helps parties in the bankruptcy go through the process.
This is necessary. Bankruptcies are confusing.
For example, it’s common for a member of FTI to serve as the chief restructuring officer in large matters. There are so many facets, and the CEO has his or her regular job to do.
FTI’s stock has been strong during this recent stretch.
Its biggest drop this year at any point is just over 20%. The market realizes its services are in demand today.
Prepare for More Bad News Ahead
I expect the economic distress will continue until we get this virus contained or have confidence that we will.
These four bankruptcy firms will profit as a result.
The last time oil prices bottomed, these firms saw their share prices rise an average of 40% in less than a year.
I expect that will happen again.
Prepare yourself accordingly.
Good investing,
Editor, Profit Line
