Dear Mr. Berko:

What can you tell me about Mirant Corp. that sells under $2 a share? I bought 1,000 shares a couple of weeks after it went public in November 2000, sold it several months later and made $12,000. Why has the stock crashed so low?

I’m now considering buying 10,000 shares as a speculation. Would you recommend this risk? Please give me your answer as soon as possible because I don’t want to miss a move on the stock.

M.K., Moline, Ill.

Dear M.K.:

Mirant (MIR-$1.82) is a $28 billion revenue, worldwide power company. This company buys and sells natural gas, coal, oil and electricity from utilities and power producers and markets the same products at slightly higher prices to other utilities and power producers.

MIR also finances, designs, builds, operates and owns power plants that collectively produce more than 22,000 megawatts (“mega” means 1 million) of electrical power. MIR went public in October 2000 at $22 a share, and by April 2001 the stock had zoomed to the high $40s, but it’s zoomed straight downhill since.

MIR has been accused by the California Public Utilities Commission (along with other power companies) of withholding generating capacity during the energy crisis to artificially inflate power prices. As if that’s not enough, the Federal Energy Regulatory Commission is investigating the company’s marketing operations. Some folks there think MIR inflated revenues by artificially enhancing its trading volume.

Meanwhile, MIR filed its June 30 second-quarter report three months late, and was nearly two months late filing its third-quarter report. These late filings appear to be systemic. The U.S. attorney’s office recently served MIR with a subpoena, and the company may have to restate revenues and earnings for 2000 and 2001.

Still, management tells us that MIR will legitimately earn between $1 and $1.05 per share for 2002. That means MIR is trading at less than two times last year’s earnings. If the weak wholesale market doesn’t get much worse, MIR could earn between 75 cents and $1 a share this year.

When you see a couple of cockroaches scamper across the kitchen floor, you can be sure that more will soon follow. And that’s how I want you to view MIR because there could be a few more surprises. The company has $7.2 billion in debt, 401 million shares outstanding and a market cap of less than $800 million. Meanwhile, MIR recently sold its economic interest in a Chinese power plant to China Resources for $300 million and is in the process of selling other less-productive assets.

According to Standard & Poor’s, MIR has a legitimate book value (who knows what “legitimate” is) of $3.40 per share. Value Line seems to think MIR’s book value could be much higher. It looks as if there may be meat on the bone, but I can’t tell you how close to the marrow that meat is. I don’t think MIR will be going out of business, and I’m told that the company’s restatement of revenues and earnings for 2000 and 2001 may not be consequential.

Still, the stock scares me. At $1.82 a share, even a small increase in price to $2.32 (just 50 cents) is more than a 25 percent gain. Yes, I think it’s a good gamble, but I want you to be mindful of my 50/50-90 rule. You have two choices: Either you buy it or you don’t; whichever choice you make has a 90 percent chance of being the wrong one.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or visit his Web site at www.berkoradio.com.