Brokers balk at Delphi stock
Once trading at $21 a share, Delphi Corp. stock falls to 36 cents.
By DON SHILLING
VINDICATOR BUSINESS EDITOR
Delphi Corp. stock, which many employees and Mahoning Valley residents rushed to buy in 1999, may become worthless, area stockbrokers say.
With the company's bankruptcy filing Saturday, holders of common stock go to the bottom of the list of creditors to receive compensation. After banks and suppliers are paid, often there isn't any money left for stockholders.
Brent Nelson, stockbroker with WRP Investments in Liberty, said he expects Delphi to follow a strategy similar to Kmart, which entered bankruptcy court in 2002. When it emerged a year later, it created a new stock and its original stock became worthless.
After Kmart acquired Sears last year, the new stock -- now known as Sears Holding Co. -- has soared.
"People asked, 'How can this new stock be worth $120 a share and the stock that I've owned for years is worthless?" Nelson said.
Law allows it
His answer? That's what the law allows.
Some companies, however, do choose to emerge from bankruptcy court with their stock intact.
Barry Haughin of Edward Jones Investments in Howland said he wouldn't rule that out in Delphi's case but he talked a few people out of buying Delphi stock Friday when it sank to $1.12 a share. A bankruptcy filing contains too much uncertainty even at that price, he said.
"All reorganizations are different, so it's pointless to sit here and try to figure out what will happen," he said.
In heavy trading Monday, the stock fell to 36 cents a share, a decline of 68 percent over Friday's price.
Very speculative
Still, some people called Howard Vari, branch manager at Wachovia Securities in Canfield, about buying Delphi stock Monday. Vari said he told them that would be a very speculative purchase.
"It's very difficult to determine what will happen to the price of that stock over the next six months," he said.
More will be known in the coming days and weeks as analysts are able to conduct research into the plans of the Michigan-based auto parts supplier, he said.
The stock's prospects seemed much brighter in 1999 when it opened at $17 a share and increased 8 percent to $18.43 on the first day of trading.
Delphi Packard Electric Systems, a Warren-based division of Delphi, said at the time that area employees placed purchase requests for more than one million shares at the opening price. Delphi had set aside five million of its initial 100 million shares for sales to employees in the United States.
Brisk sales
Area brokers reported that sales of the Delphi stock were brisk on the opening day, especially from retirees of General Motors. The Delphi stock was created after GM spun off Delphi as a separate company.
The stock peaked at about $21 a share in April 2000.
Haughin said it's been clear in recent months that Delphi was headed for bankruptcy so he has persuaded all of his clients with Delphi stock to sell it. Many of them were Delphi employees who had held onto the stock.
Nelson said he has never advised people to buy Delphi because auto suppliers have had a difficult time making money for some time.
Some employees came to him, however, when they were retiring and had Delphi stock in retirement plans. He said he encouraged them to diversify their holdings so they wouldn't be hurt by a collapse of the company.
Some people have held onto the stock, however, out of emotional attachment to the company, he said. Even when the stock fell to about $3 a share, they didn't part with it, figuring the last bit of the devaluation wouldn't hurt much more, he said.
shilling@vindy.com