Hertz Stock Buyers May Not Be Clueless After All, Fridson Says

(Bloomberg) -- Market observers said the small-time investors who bought up shares of bankrupt Hertz Global Holdings Inc. earlier this month were crazy.

Not necessarily, according to Lehmann Livian Fridson Advisors Chief Investment Officer Martin Fridson, who says that potential recoveries and company fundamentals supported the equity purchases. Hertz shares soared earlier this month, reaching a high of about $5.50 compared to about $1.20 on Tuesday.

“Everyone said the sidelined sports bettors who drove up Hertz stock were dumb, but there was actually some news that justified the rise,” Fridson said in a telephone interview on Monday. “If they overvalued that news, so did the so-called ‘smart money’ bond investors,” he said, adding that the rental-car company’s equity and bond prices moved roughly in tandem.

The common stock of a bankrupt company can have legitimate value, Fridson wrote in a note. He added that the stock of bankrupt utility PG&E Corp. will retain some of its value once the company exits bankruptcy.

“There was more substantive support for a rise in Hertz’s total enterprise value during June 4 to 8 than a spontaneous, fact-free outbreak of enthusiasm,” Fridson wrote in the note. An expansion in American Airlines Group Inc.’s July flight schedules and a recovery in used-car prices were both positive signals for Hertz, he added.

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