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The current bankruptcy cycle kicked into high gear in late 2008/early 2009. A large number of these filings have been pre-negotiated, balance sheet (and not operational) restructurings.

This dynamic has resulted in very short turnaround times - as I recall, in the 2001-2002 cycle, the average time from filing to emergence was 14 months. In the current cycle, the average time in bankruptcy has been less than six months.

So far, I have tracked 18 post reorg stocks. To calculate stock returns, I have taken the average price of the first week of trading and compared it with the closing price on April 14, 2010.

click to enlarge

Excluding the outliers Golden Minerals (NYSEMKT:AUMN) and Buffets (BUFR.PK), the average and median returns drop down to 27% and 33%, respectively. Not too shabby for a basket of equities. However, these returns look less impressive in the context of the overall market, which has been on a tear since the beginning of 2009.

But what if you were a good stock picker and able to avoid the low-return stocks in the group? In that case, you could have easily outperformed the market (easier said than done) and made a handsome return.

Disclosure: Long PMUG, Long EPL

Source: Performance Review for Post Reorganization Equities