If they make a movie about the Great Enron Collapse, I’d want a cocky, sneering, money-obsessed Michael Douglas to play the lead. You know, the guy who played Gordon Gekko, the ruthless swindler in Wall Street. This is not a job for Andy Griffith.
It would be based on a true story, but who would believe it?
Twenty-six cents! Unbelievable! That’s what a share of Enron Corp. (ENE-NYSE) was worth at the end of November – less than a year after trading at $85 with a market cap of $66 billion U.S. – as the company teetered on the brink of bankruptcy in one of the all-time great tragedies of Wall Street.
Nice timing, Enron.
Punch-drunk investors were just starting to show signs of regaining consciousness after the crash of Nortel Networks and assorted dot-bombs.
But Enron’s fall from grace as one of the darlings of Wall Street and the world’s largest energy company makes Nortel’s crash look like a fender bender.
At least Nortel, in spite of CEO John Roth’s failings, had an alibi. It was high tech. And it had lots of company as it swooned from $125 to $7.50.
And it will survive.
Oops! Make that MAY survive. You can’t be too careful these days.
A year ago, Enron was basking in the glory of being ranked seventh on the Fortune 500 list. It was one of the rocks of Wall Street, along with the likes of IBM and General Electric. The stock had run from $18 to $90 in three years.
The cracks in the armour began to show in October when it was revealed that partnerships run by the company’s executives had allowed the company to keep about half a billion dollars in debt off the books.
It appears Enron executives did a masterful job of hiding risks with murky financial reporting. The U.S. securities commission is investigating the company’s accounting practices.
But that’s no consolation to shareholders. In the event of a bankruptcy, which seemed inevitable at press time, shareholders usually end up holding the bag of worthless shares as they’re the last to get paid – after the taxman, creditors such as CIBC, which is owed $215 million US, and employees.
Some analysts began to suspect that something was amiss at Enron in the past year, but most continued to recommend the stock.
Former CEO Jeff Skilling and chairman Ken Lay, now the CEO, both sold shares earlier this year in the $50-$80 range in legal insider trading while suggesting the stock was undervalued.
In January, at an analyst/investor meeting in Houston, Skilling, like a man rehearsing for the Gordon Gekko part in a sequel to Wall Street, said he believed the stock should be worth $126.
Of course, most analysts got caught napping, again. They seemed to fall in love with the stock – which is exactly what they tell investors not to do – and most of the 17 brokerages who cover the company didn’t begin downgrading the stock until recently.
According to Zack’s analyst report at the end of November, there were still five buy recommendations on Enron, including three strong buys, along with eight holds and four sells.
Immediately after the proposed $8.4-billion acquisition of Enron by Dynegy collapsed on Nov. 28, only two houses downgraded the stock – RBC Capital Markets to a market underperform from buy and UBS Warburg from strong buy to hold.
As recently as Sept. 26, A.G. Edwards upgraded the stock to a buy from accumulate!
Robert Stovall, senior strategist with Prudential Securities which upgraded the stock from a sell to a hold on Nov. 12, says the deception of Enron’s financial state is the worst he has seen in 50 years: “They entrapped the sophisticates.”
So if you can’t believe the brokerage, the analyst, the CEO or the accountants, who can you believe?
It’s enough to make a grown man tug at Santa’s whiskers.
* STREET TALK: Several investment gurus are calling for an Osama bin Laden stock rally and most believe it would be a potent rally. “If they hang his bloody carcass from a yardarm, the market will take off,” Art Hogan, chief market analyst with Jefferies & Co. in Boston, told Newsday.
* SAD FAREWELL: It seems that Bill Hess, who has resigned as CEO of the Canadian Venture Exchange as the TSE completes its takeover of the mini-cap exchange, deserves a better sendoff for his efforts with the CDNX.
By spearheading the merger of the Alberta and Vancouver exchanges into the CDNX two years ago, Hess was lauded for bringing much-needed credibility to small-cap investing, and the new junior equity market had a roaring first year on the horns of a raging bull market.
However, as Hess departs, CDNX trading has slowed to a crawl as investors avoid speculative stocks like the plague. In October, daily value of shares traded plunged to a sorry $9.9 million, down 67 per cent from a year earlier.
A losing battle? Perhaps.
* SAGE ADVICE: “The investor’s chief problem – and even his worst enemy – is likely to be himself.”
- Benjamin Graham, the father of value investing
HOT ALBERTA STOCK: Forzani Group
FGL-TSE $14.10
Up $3.25 (+30%) on 2,201,900 shares (for week ending Nov. 30).
CEO John Forzani, the ex-Stampeder, never ran this fast when he played football. Forzani and his team continue to run to daylight in dominating Canada's sporting-goods market. Calgary-based Forzani stock raced in advance of earnings and then surged on knockout quarterly results showing earnings had increased 74.3 per cent. Forzani shares have almost tripled in the past year!
COLD NYSE STOCK: Enron Corp.
ENE-NYSE 26 Cents
Down $4.75 (-94.8%) on 966,625,900 shares (for week ending Nov. 30).
The Titanic didn't sink this fast. Last one out, turn out the lights (or blow out the candles). The circuits blew big time when Dynegy, Enron's last life preserver, saw the writing on the wall and pulled the plug on a takeover pitch. That left the 20,000-employee, Houston-based outfit, once the world's largest energy company, on the verge of bankruptcy and the dubious distinction as the biggest corporate collapse in U.S. history.
