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Taking Sides on Tenet

OKLAHOMA CITY -- Betting on the future of Tenet (THC), an ailing hospital chain five years into an elusive turnaround, has suddenly become a popular Wall Street pastime.

While the stock has lost half its value since this time last year, trading volume in Tenet stock has shot through the roof. The stock traded, on average, more than 16 million shares a day over the past month -- more than tripling its year-ago daily activity level.

Even excluding the frenetic trading at the end of August -- when 74 million shares changed hands after an analyst issued a report predicting possible bankruptcy for the company -- Tenet's average daily share volume has jumped to 13.5 million shares from 4.6 million in the comparable year-ago period.

"Passions run deep," explains CRT Capital analyst Sheryl Skolnick, a rare Tenet bull better known for taking contrarian bearish positions on companies instead. She contends that "the Street view of the Tenet portfolio appears to be too focused on the negatives and not focused enough on the positives and is valuing the company accordingly."

But Skolnick was urging investors to buy Tenet's stock at twice its recent price of $3.25 a share. Meanwhile, a celebrated health care analyst -- whose groundbreaking research laid bare some Medicare pricing games played by Tenet's previous management, leading to the company's unraveling -- has predicted a dire turn for the company.

When initiating coverage of Tenet for Credit Suisse late last month, Kenneth Weakley valued the company at just $2 a share and -- warning of a possible Chapter 11 filing three years down the road -- suggested that the stock could become worthless in the end.

Tenet insists that it has ample resources to fund its operations, and it points to recent insider stock purchases as proof of management's faith in the company. But outsiders clearly have misgivings. Hotchkis & Wiley Capital Management -- a fund holding 61 million shares of Tenet's stock at the time of Weakley's report -- has liquidated its entire position in the company.

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