A year ago, Washington Mutual Inc. collapsed into bankruptcy and disappeared. But its stock is still trading -- in fact, its shares posted a 64% gain Monday.
The thrift is among a slew of dead and damaged companies, casualties of the financial crisis, that have seen spectacular stock run-ups amid Wall Street's latest rally.
Although their prices rarely crack $1, appetite for these zombie stocks has soared in the last six weeks. And precisely because they are both cheap and very well known, the stocks draw speculators hoping to turn price swings of a few cents into big profits through rapid-fire, high-volume trades.
Federal regulators say they have gone to great lengths to warn investors of the risks involved in buying these stocks, many of which don't trade on major exchanges.
But for those bold or reckless enough to accept the risk of trading in troubled companies, Wall Street's graveyard can be a gold mine:
* Lehman Bros. Holdings Inc., the bankrupt investment bank whose collapse set off the financial crisis a year ago, has nearly quintupled in value in the last four weeks, rising to its highest levels in 11 months. It fell 1 cent on Wednesday to close at 22 cents.
* Motors Liquidation Co., which holds all the assets General Motors dumped in U.S. Bankruptcy Court, saw its shares more than double last month. Trading remains active despite repeated warnings from regulators and company officials that the stock has "no value." Motors Liquidation closed down a penny Wednesday at 74 cents.
* Mortgage giant Fannie Mae, which was taken over by the government last year, enjoyed two monster trading days in August. With volumes topping 500 million shares, its share price more than tripled and, some say, stoked the surge in activity that boosted the Dow Jones industrial average by 1,600 points in the last two months. It closed at $1.69 on Wednesday, up 1 cent.
Experts said the trading boom in stocks of dead or troubled companies has been fueled almost exclusively by speculation at the hands of aggressive day traders operating alone or on specialized high-frequency desks at trading firms and hedge funds.
Although the dollar values are low, traders buy up huge quantities of shares; a 1-cent hike on 1 million shares yields a $10,000 profit.
"You look at this using conventional valuation metrics and it makes no sense," said Steve Sosnick, equity risk manager at Interactive Brokers Group's Timber Hill, who calls the trend a "flight to garbage."
