If you’re looking for an incredibly speculative bet to make, I’d consider bankruptcy stocks to buy. They are the ultimate penny stocks, trading over the counter, primarily for less than a dime.

As the Financial Industry Regulatory Authority (FINRA) points out, “When a company files for bankruptcy protection, chances are its shares will lose most—if not all—of their value, and that the company will be delisted from its exchange. That’s bad news for shareholders.”

While it’s not recommended that do-it-yourself investors pursue a strategy of investing in bankrupt public companies, there are examples where they’ve emerged in a much better position, providing a significant boost to the stock price.

One example of a company whose shareholders managed to extract some value from their holdings despite bankruptcy is Hertz Global Holdings (NASDAQ:HTZ). It filed for Chapter 11 in May 2020. It emerged from bankruptcy in June 2021.

The bankruptcy plan often renders the old shares worthless, replaced by new equity issued to the former creditors and new equity investors. 

However, in the case of Hertz, the shareholders got $1.53 per share in cash for every old share held, plus nearly one-tenth of a new share and two-thirds of a warrant for each old share. Based on current prices, that’s almost a $9 payout for the old shareholders.

So, if you feel lucky, here are three stocks to buy before they emerge from bankruptcy.

Invacare (IVCRQ)

Invacare (OTCMKTS:IVCRQ) is an Ohio-based company that manufactures and distributes home and long-term care medical products and services. Its products include power and manual wheelchairs, home and long-term care beds, oxygen systems, and many other pieces of equipment for healthcare needs. A majority of its revenue (57%) is generated from Europe, the U.S. (39%), and Asia Pacific (4%).

On Jan. 31, the company and two U.S.-based subsidiaries commenced voluntary Chapter 11 proceedings. As part of its financial restructuring, it entered into a Restructuring Support Agreement (RSA) with all its creditors.

The RSA reduces its funded debt by $240 million, provides Invacare with $60 million of equity capital to repay some debt, and supports a transformation plan with a $70 million debtor-in-possession term loan.

In the nine months ended Sept. 30, 2022, Invacare’s revenues were $560.4 million, 13.3% less than a year earlier. At the same time, its operating loss was $64.9 million, 90% higher than a year earlier.

“The company expects to emerge with significantly less debt on its balance sheet and will secure additional liquidity to support long-term growth,” stated CEO Geoff Purtill.

Trading at less than two cents a share, 5,000 shares will cost you $100, less than a night out.

Party City (PRTYQ)

Party City (OTCMKTS:PRTYQ) is interesting for two reasons.

First, as a Canadian, I know that Canadian Tire (OTCMKTS:CDNAF) acquired Party City’s 65 Canadian stores in 2019, paying 174 million Canadian Dollars ($130.7 million). While the Canadian stores aren’t part of Party City anymore, Canadian Tire did sign a 10-year supply agreement with the U.S. business. That will be something to watch as Party City goes through bankruptcy proceedings.

Secondly, according to Party City founder Steve Mandell, the private equity firms — Berkshire Partners and Weston Presidio — that acquired Party City in 2005 stopped discounting, taking the business away from its roots. In addition, the private equity firms owned a party supply firm, forcing Party Supply to buy approximately 80% of its inventory from their supply business. By doing so, they effectively killed the store’s variety of products.

In 2012, Thomas H. Lee Partners paid $2.69 billion for a majority stake in Party City. Only 22% was their capital. The rest were borrowed funds. The company went public three years later in 2015. You can see from its prospectus that Party City’s total debt went from $982 million before the buyout to $2.2 billion just 20 months later, with $338 million of the debt incurred to pay a dividend to themselves.

So, why am I including Party City on this list?

Every company has its warts when it goes into bankruptcy. However, party supplies will always stay in style. Properly run, with a smaller store footprint and a better online focus,  it can rise from the ashes.

SVB Financial Group (SIVBQ)

SVB Financial Group (OTCMKTS:SIVBQ) has become the poster child for incompetent and greedy management. Business school classes will study the implosion of its tech-friendly bank earlier this year for years to come.

On March 17, SVB Financial, the parent of Silicon Valley Bank, filed for Chapter 11 in New York. It listed assets and liabilities up to $10 billion each. The bank holding company has filed to protect the remaining assets it has to pay bondholders.

According to Bloomberg, two of its businesses — SVB Securities and SVB Capital — aren’t included in the bankruptcy filing.

The reason I’ve selected SVB Financial is that I continue to believe that its business model wasn’t flawed. There’s been plenty of talk that it planted its flag with the wrong type of businesses — tech and innovation — and failed to diversify its deposits enough to protect it from a Peter Thiel-led run on the bank.

However, while America has many flaws, one of them isn’t and should never be a lack of funding for good or bad ideas. Here in Canada, the adage about banks applies: “A banker will always lend you his umbrella when the sun’s shining.” But, unfortunately, trying to get financing north of the border is brutally tough.

A revised version of SVB Financial should and can be rebuilt, keeping the lessons learned front and center. That said, there’s probably too much shame to make it possible.

That’s a pity.

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Read More: Penny Stocks — How to Profit Without Getting Scammed

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.