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Ditch Shares of Bankrupt Companies

Kimberly Lankford

I thought that Delta Air Lines stock would become worthless when the company came out of bankruptcy and issued new shares. Then I spoke to someone who bought Delta shares, thinking the stock would come back. Now I am considering investing in Delta.



I was under the impression that Delta Air Lines stock would become worthless when the company came out of bankruptcy and issued new shares. Then I spoke to someone who bought Delta shares before the company filed for Chapter 11 bankruptcy, thinking the stock would come back. Now I am considering investing in Delta, which is trading at 51 cents a share.

There are better things you could do with your money -- such as using it to light a cigar. Either way, you'd be watching it go up in smoke.

Maybe it's possible to buy a gazillion shares of Delta Air Lines (symbol DALRQ) at 51 cents and find a greater fool to take them off your hands for 98 cents. If you were an adept trader, you could have bought shares of UAL, the parent of United Airlines, for 45 cents in August 2003 and unloaded them less than seven months later for $3.54.

But when UAL emerged from a three-year bankruptcy reorganization in early February, its old shares were canceled, leaving them worthless. The same fate is probably in store for Delta's penny-priced shares. "When a company emerges from bankruptcy, there's less than a 1% chance that its old stock will be worth much of anything," says George Putnam, editor of The Turnaround Letter. So don't jump off a bridge -- or into the stock of a bankrupt company -- just because others are doing it.

To learn more, see Get Out of Bankrupt Shares While You Can.

Got a question? Ask Kim at askkim@kiplinger.com.



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