18 Companies Worth Following if Listing Requirements Change

This past week I noted in the Financial Times that NYSE Euronext (NYX) has sounded the alarm for another retreat. Apparently it is working with US regulators to ease its listing requirement* of a minimum $1 share price in order to protect itself (and overall market confidence) from a wave of delistings. As of Sunday, 86 companies or about 4% of NYSE listed stocks may not meet this requirement. If one also includes its listings trading at or below $2 per share, which may already be trapped in this bear market’s capital sucking vortex, then the danger list increases to 191 companies or about 8.75% of its listings. (Note that this NYSE stock list excludes preferred stocks and exchange traded funds.)

At Hillbent, a lot of research work is focused on price-volume analysis (for asset classes, indexes, sectors, industry groups/ETFs, and individual stocks/securities) and its impact or projected impact on the market direction. One of my basic tenets for price-volume analysis is that contrary to popular belief, falling prices on less volume is not the best of a bad situation, but instead reflects the most bearish of all relationships. For the sake of brevity (and also the fact that I am only sharing summary conclusions from a proprietary premium research report), the net effect on stocks that are currently eligible for delisting or spiraling towards this direction has been an extreme contraction in average daily trading volume relative to past historical periods.

Obviously, the liquidity risk of owning a stock vulnerable to delisting increases with each passing day and decline in its share price. Since a decrease in volume indicates the absence of interested buyers, it does not take as much selling pressure to drive down the market in a stock. Also, factor in the SEC’s elimination of the uptick rule for shorting stocks and its lax enforcement against naked shorting. These three conditions facilitate sappers attacking the equity market’s key stress points, i.e. specific stocks and industries, and the result is a recipe for how to implode a capital market that would rival even the best structural demolitions expert teams.

So now, the question becomes - is this contemplated measure between the NYSE and its regulators the equivalent of sending in the bomb squad to neutralize another potential disaster? Last year, the exchange saw the aggregate market cap of its parent group’s listed companies contract at $14 trillion, a number roughly equivalent to the annual US GDP. A testament to our nation’s economic strength and endurance is the fact that thus far we have survived an onslaught of proportionately greater economic devastation than the 911 attacks. However, financial markets, just like our fiat currency, are built upon confidence, and therefore I do not think the market could psychologically endure the warranted or unwarranted delisting of so many potential household names. NYX has a vested interest, considering that the aggregate average daily volume of the 86 issues potentially eligible for delisting equals about 151mm shares and that the 191 companies eligible or heading towards delisting standards represent an aggregate average daily volume of 507mm shares or roughly 9% of the NYSE’s average daily trading volume. That’s a lot of commissions revenue that can be preserved with a simple wink and a nod from the SEC.

Now all of the above may be interesting information, but the real purpose of this report is not to emphasize how bad things are, but to proactively look for contrarian ways to profit from the existing market condition and upcoming regulatory changes which will mitigate the risk of delistment for hundreds of stocks. Yes, I happen to think that the SEC will accommodate the NYSE’s request to ease its listing requirements. The Nasdaq OMX (NDAQ), its rival, has already suspended its minimum bid price and market cap requirements and on a relative basis is handily outperforming NYX (see chart #1). Earlier this year, regulators granted the NYSE temporary reprieve from maintenance of a $25mm minimum market cap over a 30-day period by reducing it to $15mm. Currently, 493 or about 22.5% of NYSE listed stocks trade at $5 or less per share. Remember, as price falls and volume contracts, it does not take as many sellers to push down prices. Mitigating the liquidity risk for potential delisting will be a big step in the right direction. If only we could get the cronyistic regulators to place their heads back on their shoulders, we could also rescind the uptick rule and see stricter enforcement of naked short selling. (I look forward to the day when I can write a report on this event.)

Chart #1

Against this backdrop and upcoming announcement, I would anticipate NYX to exhibit more positive performance. In addition to this, I have also provided a short list of 18 companies (see chart #2) that are worth monitoring over the upcoming weeks with regards to this event. Each company has a minimum Hillbent proprietary composite grade of "B" or higher and a short interest ratio of 5 or greater. Am I making any guarantees on this list? Absolutely not! But, I suspect that removing the potential risk of delistment should improve their liquidity (which is not to be confused with fundamentals). It’s a starting point and I strongly encourage readers to dig deeper into some of these names and share opinions and conclusions of their personal research results. One way or another, we will all get through this together.

Chart #2

*Current rules stipulate that a company may be delisted if its share price falls below $1 for 30 consecutive trading days if a company fails to resolve this issue within a 6 month "period".

Disclosure: None

Comments

[Fred Carach:]

I wish to comment on the above listed stock, Anthracite Capital. I own this stock. At below a dollar it is a fantastic investment. S&P gives this stock a tangible book value of $4.94/share. It raised its dividend last june by one cent a share. it pays a dividend of $1.24 a share and it is selling at 83 cents a share. That is a dividend yield of over 100%. its earnigs are about $1.49/share. Even if you factor in a 20% dividend cut it is a fantastic play. The S&P fair value calculation on the stock is $4.50 a share.

Mar 02 11:28 AM

[toomuchgas:]

There's a nugget in this group somewhere. But the question is do you feel lucky? Do you punk?

Mar 02 11:54 AM

[J Clinton Hill:]

hey too much gas,

let's show some class, eh?

in the spirit of collaboration, i have asked readers to share their researched opinions on any of these names included on the list. if you wish to contribute positve or negative comments on any of them, please share your rationale for such so they we may all benefit from your insights. fair enough?

i must admit that i had to laugh when i read "...do you feel luck? do you punk?" just like smith & wesson report, i think some of the names on this list have the potential to make an investor's day.... right now the markets are whacked and i've acknowledged this on my website and seeking alpha... if you read my market condition report, i give a daily review on market trends for various asset classes' short, intermediate, and long term outlooks...

the changes sought by the nyse have high probability of being enacted and knowing in advance which companies might be impacted is just common sense and good planning.

otherwise, again, for the benefit of readers (including myself), can you please be more specific on the point you wish to illustrate with your comments?

best regards,

On Mar 02 11:54 AM toomuchgas wrote:

> There's a nugget in this group somewhere. But the question is do
> you feel lucky? Do you punk?

Mar 02 05:09 PM

[BigOlDave:]

AHR, which is a REIT, may be having trouble valuing its commercial properties in the current environment. They suspended the latest dividend because they calculate having overpaid/paid enough during the first 3 quarters for the year. And 90% of dividends may be paid out in shares in the future, which may spooked some investors ...particularly with AHR trading below the $1.00 threshold. Here's what BlackRock said on its AHR site:

"Anthracite's Board of Directors anticipates declaring and paying the minimum amount of cash dividends on its common stock required to maintain REIT status until the Company's short term debt is further reduced and market values of commercial real estate debt show signs of stability. The Company estimates that 2008 taxable income distribution requirements were satisfied by the distributions during the first three quarters of 2008; therefore, the Board of Directors did not declare a common stock dividend for the fourth quarter. In 2009, the Board of Directors may authorize the Company's use of a new tax rule allowing REITs to satisfy their taxable income distribution requirements with a 90% stock distribution and the remaining 10% in cash."

I still like this REIT: it will come back.

Mar 02 10:38 PM

[Big K:]

Rules are rules. Why have the $1 rule if you are just going to change it? Mr. Market prices fairly all stocks. If a stock goes below $1, it is probably not investment worthy anyway, and the shares should be taken off the market. The $1 rule is to protect investors from worthless companies masquerading as investment grade national companies. If a company insists on being on the exchange normally reserved for more successful companies, all a company has to do is a reverse split, done deal.

Mar 03 01:06 AM

[zvarvel:]

Blockbuster overview:

Activist/Management=Ca... Icahn and Jim Keyes(turned around 7-11)...check

Recession business=movies and gaming...check

Valuation=EBITDA has doubled over 18 months and EBITDA is greater than market cap...check

Debt overhang and high short interest=squeeze=only $200million in debt due in August 2009-will be paid off, refied or Carl will help. Short interest will sky rocket when profitability and debt is solved. This quarter

Mar 03 10:51 AM

[J Clinton Hill:]

first off, i would like to say thank you to everyone who has shared their input and insights on this list of names.... i'll try to be brief as i must rush off to say final good-byes and share a couple pints with one of my best friends who is flying back to berlin... peter, my friend, is from the old school of austrian economics and has a doom & gloom demeanor towards the u.s. that makes roubini and faber look like the sunshine choir... we've had many unresolved debates over many fine dinners and bottles of wine or refreshing cold german wheat beer after rigorous sport while watching southern california sunsets over the last 20 years... he's returning to have triple by-pass heart surgery and wishes to be near his family in germany for surgery and recovery... my thoughts and prayers go out to him and if any are so inclined, he would probably appreciate yours as well...

no on to my comments... 1) i agree that rules based upon priniciples should be strictly enforced but the reality of the situation, whether right or wrong, dictates otherwise... down the road we may be able to redirect our focus towards this issue, but as the war wages on, let's do our best to adapt to the forces of change and exploit it to our advantage if possible....

regarding AHR & BBI, good stuff... i kind of regard block buster as a recession friendly stock even if they have been demoted to #2... AHR appears to be stable enough to remain an ongoing concern although illiquidity of their portfolio is an untimely nuisance....

we kind of have to look at this like a war: some of these stocks are being held hostage by illegal naked short selling and illiquidity risk of potential delistment.... going in to scoop any of them up is akin to staging a commando raid which is inherently dangerous... but, i think if one watches these closely and tracks the news diligently, it will be interesting to see how the shorts respond.... although i am not happy with the way the administration is going about resolving this crisis, i have faith that they will make some positive impact upon the economy and allow for the handicap of dealing with a "black swan" that neither side of the ailse (democrats or republicans), bankers, or regulators saw coming....

i didn't produce the whole list of names that are spiraling towards delisting, but i can only say that there were quite a few household names that did not make the final cut of 18 due to questionable fundamentals... i think our boys in washington and the exchanges are running a propaganda war against this bear market and believe that delisting some of these names would damage morale beyond and psychologically scar american consumers for decades....

so much for being brief.... gotta run.... but would welcome additional comments on AHR, BBI, and other names.... i think some of the shorts will find themselves on the other end of the vise-grip and hopefully it will be some of us doing the squeezing...

once again, thanks to all...

cheers...

Mar 03 05:31 PM

[optionswriter:]

Fred,

Effectively, there is no dividend on AHR. As I understand it, what they will be doing is paying stock in lieu of cash. Btw, what was the last payment stock or cash that they made?


On Mar 02 11:28 AM Fred Carach wrote:

> I wish to comment on the above listed stock, Anthracite Capital.
> I own this stock. At below a dollar it is a fantastic investment.
> S&P gives this stock a tangible book value of $4.94/share. It
> raised its dividend last june by one cent a share. it pays a dividend
> of $1.24 a share and it is selling at 83 cents a share. That is a
> dividend yield of over 100%. its earnigs are about $1.49/share. Even
> if you factor in a 20% dividend cut it is a fantastic play. The S&P
> fair value calculation on the stock is $4.50 a share.

Mar 05 08:17 AM

[luckyone7:]

I would like to thank the author of the above article as the delisting of the stock I am interested in would be a real travesty.

The Fundamentals for CDE look very positive.I have a vested interest in that I hold a very large position.If you believe in upward marching PMs -then IMHO CDE is an absolute steal at these prices.Check out their assets V
liabilities for yourselves.

The short position in this Co is nothing short of scandalous.It is much higher than reported above. According to Shortsqueese.com there are 76.4M Shares short or 15.86% of issued shares.With 2 new Silver Mines coming on steam these shares are worth multiples of the current price.

How N.Americans can live with such a corrupted Market system is beyond belief. Without an uptick rule Hedge Funds & others can short the $hit out of any Share they want with inpunity.Taken hand in hand with crooked analysts & ratings managers the big A/holes rob on the way down & again on the way up -if anyones left standing! Links to look at re CDE (CXC on ASX)
www.asx.com.au/asxpdf/...

www.asx.com.au/asxpdf/...

Mar 10 12:32 AM

[User 375449:]

Sir believe me in time your going to get a quick awankening when your company files for chapter 11 because no company can keep paying a dividened like that and still trade at .83 cents a share. Doctor Evil is somewhere behind the scenes in this one. Watch out!!
Crooks hire Crooks to be team players and erection specialist to the common shareholders who always get nothing BUT a shagging in the rear end.


On Mar 02 11:28 AM Fred Carach wrote:

> I wish to comment on the above listed stock, Anthracite Capital.
> I own this stock. At below a dollar it is a fantastic investment.
> S&P gives this stock a tangible book value of $4.94/share. It
> raised its dividend last june by one cent a share. it pays a dividend
> of $1.24 a share and it is selling at 83 cents a share. That is a
> dividend yield of over 100%. its earnigs are about $1.49/share. Even
> if you factor in a 20% dividend cut it is a fantastic play. The S&P
> fair value calculation on the stock is $4.50 a share.

Mar 12 06:45 PM

[PeteK:]

luckyone7;
Agree with you on CDE.
A steal indeed.

Mar 26 03:54 AM

[Northstar10000:]

CDE
is doing a reverse split which means big time problems

Mar 31 09:35 PM

[Accidental ...:]

On AHR, I am trying to understand the risk to the company imputed by the market trading the common stock under a buck a share. It seems to me, book value is a less important number than the ability of the underlying asset to generate cash flow required to service outstanding debt. My current understanding is that AHR is leveraged roughly 7:1. Given the type of investments that AHR seems to hold, 1)what is the degree of impairment to cash flow that can occur before debt can no longer be serviced, and is AHR near that level; 2)If AHR is, indeed, near that level, does it have investments that it can sell into this illiquid marketplace for real estate related securities, to generate free cash (cash in excess of indebtedness), to service that indebtedness in the short term?; and, 3) Are conditions such that its remaining investments will return to generating cash flow in excess of debt servicing requirements, soon? or, 4) Lacking a positive answer to #3, can the debt be renegotiated and restructured?

Let me phrase this in terms perhaps more understandable to me: is the market figuring AHR is a group of financial engineers potentially faced with one mother###### of a margin call, which they will not be able to meet? And what, in your opinion, is the probability of AHR actually meeting the margin call, and how do economic conditions need to change, in the very short term to ensure that outcome?

Thanks, anyone, for helping me understand this. I bought a passel of AHR on a total crap shoot this morning. Now I am trying to figure out just what the hell it is that I own. I bought it because I thought it was a coal mine. Hopefully, I won't end up wishing that it was. I guess the lesson of the day is, look first, shoot later. Obviously, if anyone posts an answer that makes AHR preferable to coal, I'll leave the dice where they lay.

Apr 08 08:00 PM

[Punk4Profit:]

Greetings J, I'm a little late to the party (seems to be my M.O. lately). I just found Pzena through some research (the giant spike in volume/share price today). I'm going long with it on spec probably tomorrow based on the research I've done so far, this company looks like it has some promise. I'm not recommending it but it definitely sparks my interest based on my own DD. Thanks for your informative posts!


On Mar 02 05:09 PM J Clinton Hill wrote:

> hey too much gas,
>
> let's show some class, eh?
>
> in the spirit of collaboration, i have asked readers to share their
> researched opinions on any of these names included on the list. if
> you wish to contribute positve or negative comments on any of them,
> please share your rationale for such so they we may all benefit from
> your insights. fair enough?
>
> i must admit that i had to laugh when i read "...do you feel luck?
> do you punk?" just like smith & wesson report, i think some of
> the names on this list have the potential to make an investor's day....
> right now the markets are whacked and i've acknowledged this on my
> website and seeking alpha... if you read my market condition report,
> i give a daily review on market trends for various asset classes'
> short, intermediate, and long term outlooks...
>
> the changes sought by the nyse have high probability of being enacted
> and knowing in advance which companies might be impacted is just
> common sense and good planning.
>
> otherwise, again, for the benefit of readers (including myself),
> can you please be more specific on the point you wish to illustrate
> with your comments?
>
> best regards,
>
> On Mar 02 11:54 AM toomuchgas wrote:

Apr 20 09:40 PM