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Back on October 3, I posted on an interesting bankruptcy play: Global Power Equipment (GEGQQ.PK). James Altucher describes the "buying bankruptcies" strategy in his book "Trade like a Hedge Fund".

When a company declares bankruptcy, the stock gets halted and then opens much lower after the halt, but then often doubles or more soon after. So many people anticipate the bankruptcy (thinking the stock will go immediately to zero) that a short squeeze can result.

GEGQQ declared bankruptcy after the close of Sept. 28. The stock price closed at 2.13 before the bankruptcy was announced. It traded huge volume the following Monday and opened at around 0.40, traded as low as 0.27 and closed around 0.47. When I posted on GEGQQ, it had just closed at 0.60. The stock did trade a little higher over the next few weeks, but it basically traded sideways through the end of last year. I now believe that tax loss selling may have been keeping a lid on the stock price. Going forward, I plan to avoid bankruptcy plays near the end of the year, and will wait for the new year to start.

But starting this year (2007), GEGQQ has performed very well. There has been very little news out on the company, except for $42 million in contract awards to their Braden Manufacturing division announced on February 20.

GEGQQ closed on Friday at $1.96 and has pretty much "filled the gap" created by the bankruptcy announcement when the stock fell overnight from $2.13 down to $0.40. I am not a big believer in most traditional technical analysis, but I think that in this case, there will be a lot of retail sellers who want to "break even" and will sell GEGQQ when it reaches $2.13. But if GEGQQ can close above $2.13 for several days in a row, that would be a sign of strength and could signal much higher prices ahead.

Since I have a fairly small position in GEGQQ (around 7,000 shares) I plan to hold on to most of my shares and see how things develop. I've noticed recently that GEGQQ has been "popping up" on some stock screens that look for stocks with low price/book ratio, low price/sales ratio and high relative price strength. These screens could be bringing in new investors to GEGQQ who invest based on the numbers.

GEGQQ.PK 1-yr chart:

Source: Global Power Equipment: Stock Performing Well, Despite Bankruptcy