5 Superball Stocks

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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 180,000 members of Motley Fool CAPS, we'll see whether any of them have the potential to bounce back.

It's been a while, but thanks to last week's sell-off, we once again have a chance to stand beneath Mr. Market's silverware drawer in hopes of snagging a bargain. Let's meet today's contenders:

Company

 

How Far From 52-Week High?

Recent Price

CAPS Rating
(out of 5)

CF Industries (NYS: CF) (9%)$178.73*****
DryShips (NAS: DRYS) (35%)$3.31***
SodaStream International (NAS: SODA) (57%)$34.56**
Pandora (NYS: P) (56%)$11.50*
Green Mountain Coffee Roasters (NAS: GMCR) (55%)$52.59*

Companies are selected by screening on finviz.com for abrupt 5% or greater price drops last week. 52-week high and recent price data provided by finviz.com. CAPS ratings from Motley Fool CAPS.

Five super falls -- one superball
After topping 13,000 for the first time in nearly five years, the Dow Jones Industrial Average slipped back below the threshold last week. It surged back northward yesterday. Its sister index, the Nasdaq, is sitting solidly in the green pastures north of the 3,000 mark. But why did stocks slip in the first place?

In the case of Green Mountain Coffee Roasters, the answer's in the stars. Starbucks, to be precise, which devastated investors in its putative partner by introducing its own single-serve coffee machine to the homefront. Theoretically, there's still a chance that Starbucks will only market its specialty Verismo espresso maker as a complement to Green Mountain's Keurig brewers, and not actually try to steal the single-serve market away from the company that created it. I wouldn't bet on it, though.

In contrast, a lot of people bet big on SodaStream Monday (and won) following its last-week slump. That probably shouldn't come as a surprise, seeing as SodaStream really had no bad news -- and even a bit of good news -- underlying its share-price weakness. Here's something that may surprise you, though: Even after shares popped 11% on Monday, analyst William Blair says SodaStream shares are "attractive." At 28 times earnings and 30% projected growth, I think I can see the attraction, too.

Not so with Pandora. I explained last week why I thought Pandora had a problem. (With a triple-digit P/E and only a double-digit growth rate, the math wasn't terribly hard.) Within just a few hours, Pandora obligingly reported miserable earnings and proved me right.

And finally, DryShips. Here at the Fool, we've been skeptical of this dry bulk shipper for quite some time now. With DryShips currently unprofitable and analysts offering up nothing but doom and gloom for the industry (Bloomberg now predicts that shipping rates will soon fall to "the lowest level in a decade"), I see no reason to change that assessment.

That's not to say that last week's sell-off offers no prospects for profit, however. While most of the stocks discussed so far sport CAPS ratings that range from mediocre to miserable, one stock stands head-and-shoulders above the rest, sporting a full complement of five CAPS stars: CF Industries. Clearly, Fools love CF.

The bull case for CF Industries
And why wouldn't they? As CAPS member 2win points out, CF is "loaded with cash" and selling for a price that's nearly as cheap as it's ever been "since the Great Recession."

dreamjob likes how "management is generating cash for the owners of this company, and cash returns on investments are very good."

So good, in fact, that another of our members -- FoolSolo this time -- goes so far as to call CF a "CASH MACHINE! These guys practically print money."

All together, now: "How much money do they print?" Well, I'll tell you: Last year, CF Industries generated $1.8 billion in free cash flow, a number nearly 20% greater than the $1.5 billion it reported as net income. Divide this number into CF's $11.7 billion market cap, and you'll see that this major player in the fertilizer market sells for just a hair over eight times earnings and a mere 6.5 times annual free cash flow.

That's a pretty good price for a stock projected to grow earnings at better than 10% per year over the next half-decade -- and a pretty good reason to think that out of all the stocks named up above, CF Industries is the one most likely to bounce back.

Like finding (and buying) tiny, bargain-priced stocks before Wall Street even discovers they exist? Then you're going to love our latest discovery. Read all about "The Motley Fool's Top Stock for 2012" in this free report.

At the time this article was published The Motley Fool owns shares of CF Industries.Motley Fool newsletter serviceshave recommended buying shares of Green Mountain Coffee Roasters and SodaStream International, as well as creating a lurking gator position in Green Mountain Coffee Roasters.Fool contributorRich Smithdoes not own shares of (or short) any company named above. You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 390 out of more than 180,000 members. The Fool has adisclosure policy.Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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