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.

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:

Companies

 

How Far From 52-Week High?

Recent Price

CAPS Rating
(out of 5)

Spectrum Pharmaceuticals (NAS: SPPI) (41%)$9.51****
Sony (NYS: SNE) (43%)$17.36**
Popular (NAS: BPOP) (45%)$1.80***
Dendreon (NAS: DNDN) (80%)$8.85**
Avanir Pharmaceuticals (NAS: AVNR) (40%)$2.90**

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
Last week the S&P 500 "won" the dubious honor of having posted back-to-back losses for the first time in six months, as more than 4,800 companies ended the week with lower market caps than they began it.

Biotechs had an especially hard time of things, with former mo-mo stock Dendreon tumbling 15% on a significant cut in price target from Citigroup, and Spectrum slipping 14% after reporting weak clinical results from its bladder cancer drug, apaziquone. Avanir is making its second straight appearance in this column; once again, its stock is showing surprising weakness (down over 10% last week) for no reason in particular.

Elsewhere, Popular shed 11% of its market cap last week and picked up a threatened downgrade from Moody's Investors Service. Even trading at a lowly 13 times earnings, Moody's worries there's additional downside to the stock if Puerto Rico's recession continues to impede growth. And speaking of downside, Sony just issued its fourth earnings warning of the year, predicting it will lose $6.4 billion this year.

Ouch. But can any of these stocks bounce back from their bad news?

Perhaps. Of the five companies named above, it turns out that CAPS members do believe in the potential for at least one stock to outperform the market this year. Fool blogger Maxwell Fisher argues that 2012 is going to be a year of "strong growth" for Spectrum Pharmaceuticals -- and he's not the only one entertaining high hopes for this stock. In fact, just last month we were talking about how Wall Street had taken a fancy to four-star Spectrum, making it one of the stocks most actively being acquired by institutional traders.

The bull case for Spectrum Pharmaceuticals
Why would Wall Street want to own Spectrum? Probably for the same reasons that so many Fools like it. Apaziquone may be out, or its failures may only delay eventual approval. Either way, CAPS member em26jamie points out that Spectrum still has "2 profitable FDA approved drugs already," and multiple other drugs in the pipeline behind them.

And Spectrum did its own part to help mitigate the apaziquone disappointment by replacing it with Folotyn (which is already on the market) when it bought Allos Therapeutics last week.

Foolish final thought
Profitable and free cash flow-positive, Spectrum Pharmaceuticals trades for a P/E of just over 11.5. It shouldn't have to grow much faster than 11% per year to justify that price. But in fact, even assuming that apaziquone never gets to market, analysts still predict earnings will grow at 15% per year through 2016.

If that turns out to be anywhere near correct, then last week's sell-off has given you an excellent chance to buy this stock and ride it up when it bounces back.

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At the time this article was published The Motley Fool owns shares of Dendreon, but 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. 356 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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