By nearly any measurement, 2008 was a wake up call to reckless CEO’s who took extreme risks and watched those risks backfire.  Several “invincible” firms have now completely vanished from the scene, including Countrywide Financial, Washington Mutual, Indymac, Bear Sterns and Lehman Brothers.  Yet even more are hanging on by mere threads, and are now part of the Sub Two Dollar Stock Club.

Take a look at the 5 year chart below showing a good mix of the members in the sub two dollar stock club.  To be a member of the two dollar stock club, your chosen CEO must have nearly destroyed all of the equity in your firm.  2008 was a great year for adding new members into the two dollar stock club.  The Google Finance stock screen I used had three criteria:

  • Current market cap greater than $100 million
  • 52 week price change between -80% and -100%
  • Current stock price betwen 50 cents and $2


There were 41 companies in the latest screen.  It’s quite possible that some or even most of them could be completely wiped out in 2009. The 5 year chart (3 years visible) below shows five companies in the sub two dollar club.  Notice the end result that all of them were down very close to 100%.

Is there any rebound hope for the members in the sub two dollar club?  Anything is possible but at very long shot odds.  However, a solid recovery by members in this group could yield hefty profits to those wanting to take on the risk.  And before you go throwing your cash at these names, be aware that the risks are immense!

  • AIG - Years ago I remember the Motley Fool guys touting this stock as one to own for life.  But those fools apparently had no idea that AIG was writing trillions of dollars in mortgage insurance contracts it had no ability to pay.  AIG is still alive today because of the $85 billion emergency taxpayer funded loan, but it still carries severe risk of collapse.  The financials on AIG are to complex to understand completely, but Standard and Poor’s recently rated it a HOLD, with a 12 month price target of $3.  They also are forecasting a return to profitability in 2009, with full year EPS of $.40.  Keep in mind, however, that Standard and Poor’s and Moody’s were asleep at the wheel and furiously giving AAA rubber stamp ratings to nearly everything that crossed their desks.  AIG closed today’s session at $1.69.
  • ETFC – The online discount broker has over 4.8 million accounts in more than 40 countries, according to their website.  At some point, their CEO and board decided to branch away from their CORE and invest gamble on sub prime mortgages.  That gamble nearly wiped out the company and they are still struggling to recover.  But Etrade still has a lot going for it in its large and growing account base.  According to Standard & Poor’s, the Q3 2008 financial results showed a 4% increase in customers and a 6.6% increase in daily average trade revenue.  But S&P still forecasts a loss in 2009 equal to $.16 per share (down from an estimated $1.31 loss per share in 2008).  ETrade closed today’s session at 1.31.  It’s current S&P rating is HOLD, with a 12 month price target of $2.50.
  • GGP – General Growth Properties is one of the largest shopping mall owners and operators in America.  But it is struggling with an enormous debt load that may crush the company out of existence.  It’s shares last traded at $1.42, giving it a market cap of $381 million, but with a last reported total debt load (from 9-30-08) of nearly $25 billion! The latest Standard & Poor’s report is apparently to embarassed to refer to 2009 “earnings”.  Instead, they describe 2009 projections in terms of “funds from operations”.   Commercial property is under enormous pressure from declining rents, vacancies, and insolvent tenants.  But if you believe there is a sliver of hope for an drastic economic recovery, then it may be possible for GGP to hit their 12 month S&P price target of $2.00 per share.  They closed today’s session at $1.42.

Check out your own Google Finance screen for more members of the sub two dollar stock club.

Disclosure: Currently long AIG, but may or may not invest or trade in other mentioned names in the future.

Disclaimer: Invest and/or trade at your own risk!  This post is NOT advice!