5 Superball Stocks
When stocks fall fast and far, they sometimes set themselves up for remarkable rebounds. The following equities suffered dramatic drops over the past week. With help from the 170,000 members of Motley Fool CAPS, we'll see whether any of them have the potential to bounce back:
How Far From 52-Week High?
CAPS Rating(out of 5)
|Arcelor Mittal (NYS: MT)||(41%)||$22.79||*****|
|Clean Energy Fuels (NAS: CLNE)||(30%)||$12.45||****|
|Sprint Nextel (NYS: S)||(50%)||$3.20||**|
|SodaStream (NAS: SODA)||(40%)||$47.89||**|
|AOL (NYS: AOL)||(57%)||$11.78||*|
Companies are selected by screening on finviz.com for abrupt 10% or greater price drops over the past week. Recent price and 52-week-high data provided by finviz.com. CAPS ratings from Motley Fool CAPS.
Five super falls -- one superball
What a week. As markets continued to wither under a summer sun, more than 4,500 stocks declined in value. More than 270 of these lost 10% or more of their market cap ... including each of the companies named above. So what went wrong?
Beginning at the bottom, AOL had a rough time of things on Tuesday after confirming that it's having trouble supporting rising costs with declining revenues. The stock lost 31% on the news. Even promising to buy back $250 million worth of its stock (about 20% of market cap) wasn't enough to save the week.
Two days later, SodaStream did its level best to make AOL shareholders feel lucky. After issuing weak guidance for the coming quarter, SodaStream shares sank 34%.
Sprint Nextel? More like "Sprint, next sell," according to investors. The nation's third-largest telco admitted Thursday that it's probably going to have to sink more money into struggling partner Clearwire. Investors were not amused. Meanwhile, Clean Energy missed analyst estimates for both revenue and earnings earnings -- and got hit dead-on with a downgrade from Northland Securities in consequence.
Of these four stocks, Clean Energy remains the favorite among CAPS members -- and rightly so. Even if it missed earnings, this natural-gas fuel supplier did still manage to grow its revenues 57%. But it's still not the favorite stock on today's list. That honor goes to Euro-American steel conglomerate Arcelor Mittal, the sole recipient of a full complement of five CAPS stars this week. Why do investors love it above all the rest?
The bull case for ArcelorMittal
Well, really, what's not to like? As CAPS member PETPOE points out, Arcelor is an "integrated steel/coal coloss." PETPOE continues: "Its European business may [not] grow as fast anymore, but good prospects in Asia and Americas. OK dividend to wait for recovery of steel market."
Brxcqqq agrees that it may take "a bit of time before steel recovers" but believes that Arcelor "should do well with the rest of the commodity boom."
Also rolling the dice on Arcelor is CAPS member rebuildingNC. As NC puts it, the stock is "trading at 50% BV ... why not ?"
Actually, Arcelor costs about 0.55 times book value today -- but to-may-to, to-mah-to. Clearly, it's still a pretty cheap stock by almost any measure. While currently free cash flow-negative, Arcelor generated nearly $6 billion annually on average over the past five years. That tells me the stock's selling for an enterprise value of about 10 times its long-term cash-generating power. Valued on GAAP profits, the stock costs 10 times trailing earnings, and less than 6 times next year's earnings. That price is cheaper than either U.S. Steel (NYS: X) or AK Steel (NYS: AKS) -- two companies that have received a whole raft of upgrades from Wall Street over the past few months.
While Wall Street hasn't yet seen fit to shower accolades upon Arcelor itself, I have no such reluctance. At a price just 10 times trailing earnings, a value 10 times average annual free cash flow, and a growth rate that most analysts still insist will average 22% per year over the next five years, I think Arcelor is a real diamond in the rough -- and a probable superball stock.
Of course, that's just my opinion. What's yours? Tell us about it on Motley Fool CAPS.
At the time this article was published Fool contributorRich Smithdoes not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 468 out of more than 170,000 members.Motley Fool newsletter serviceshave recommended buying shares of SodaStream International. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has adisclosure policy.
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