One Firm’s Pain Spells Potential Gain for its Rivals

When Circuit City went bankrupt in 2008, it should have been immediately clear that rival Best Buy (NYSE: BBY) was set to win a whole bunch of new customers. But the economy was lousy, so investors were in no hurry to go after shares of Best Buy. They should have been. Just a few quarters later, Best Buy was delivering great results, and shares, which had fallen below $20 in the market swoon of early 2009, jumped past $40 by the middle of 2009.

We’ve seen this all before. When Chrysler and GM had to radically shrink to survive, it was clear that Ford (NYSE: F) could pick up market share. It did, and shares, belatedly, quadrupled. Only recently, we saw Pier One (NYSE: PIR) boast that business has never been better, now that Linens & Things is out of business. But Linens & Things closed up shop more than a year ago, and any market share shift took a few quarters to become apparent.

Investors may have a chance to profit from a possible bankruptcy once again. YRC Worldwide (Nasdaq: YRCW), the nation’s third-largest trucking firm, has seen its shares fall to $0.17 from a 52-week high of $6.18 in September. YRC pushed hard to achieve cost savings while keeping creditors at bay. Earlier this month, it amended its borrowing agreements and was able to get some more cash in the door, but it increasingly looks as if YRC may need to shrink while under bankruptcy protection in order to survive — unless the economy posts a sudden strong recovery. As YRC sheds certain routes, rivals Arkansas Best (Nasdaq: ABFS) and Con-Way (NYSE: CNW) stand to pick up market share.

As it happens, the major rail carriers have been taking market share, leaving less business for the trucking firms — a problem that was exacerbated by the economic slowdown. This business is all about scale, and if Con-Way and ABFS can pick up some of YRC’s business, then results could be quite robust as the economy rebounds, now that they have leaner cost structures.

Investors may also want to dig into the ramifications of a potential bankruptcy filing by Trico Marine (Nasdaq: TRMA), which provides marine support services to offshore drillers. Rivals such as Oceaneering (NYSE: OII) and Seacor Holdings (NYSE: CKH) look like beneficiaries, either through increased market share, or through a chance to pick up Trico Marine’s assets on the cheap through bankruptcy court, if it comes to that.

Action to Take –> The best time to move is when you see a stock falling sharply, hurdling toward zero. That usually implies that a bankruptcy filing may be coming. By reading the company’s last 10-K and other financial sources, you can glean a sense of market share dynamics, and which companies are perceived as key rivals.

If the economy remains in low-growth mode, or dips back into recession as some suspect, we’ll see an increasing number of bankruptcy filings.