5 Superball Stocks

Before you go, we thought you'd like these...
Before you go close icon

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:

Companies

How Far From 52-Week High?

Recent Price

CAPS Rating
(out of 5)

Laboratory Corporation of America (NYS: LH) (13%)$85.26*****
Alcatel-Lucent (NYS: ALU) (79%)$1.14***
Arena Pharmaceuticals (NAS: ARNA) (25%)$9.52**
VIVUS (NAS: VVUS) (28%)$24.15**
Rambus (NAS: RMBS) (77%)$4.30*

Companies are selected by screening on finviz.com for abrupt 10% 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 five trading days, the Dow Jones Industrial Average ended very much as it began, rising a mere 0.3% to close the week. Based on this number alone, you might think it was a pretty uneventful week... but that couldn't be further from the truth. In fact, even as the Dow itself basically went nowhere, more than 3,500 separate stocks lost value. Among these, many companies were quite literally decimated, as their stocks lost 10% or more of their value. So what went wrong?

Beginning at the bottom, semiconductor chip designer Rambus reported a $0.29-per-share loss, a near threefold increase in comparison to last year's loss. In other tech news, Alcatel-Lucent missed earnings badly, and suffered a downgrade for its troubles.

Turning to health care, we saw happier news at VIVUS, as the FDA gave its stamp of approval to the firm's new diet drug. (Doubtless this new competition is the reason that rival diet-drug maker Arena took a tumble.) Sadly for VIVUS shareholders, no sooner had FDA given them the good news than professional pessimist Citron Research warned that VIVUS lacks the patent protection it needs to profit from its new drug. Sometimes, you just can't win...

Or can you? Judging from their below-par star ratings on CAPS, none of these stocks is particularly popular with investors right now. One company that is raking in the accolades, however, is LabCorp. Five-star-rated on CAPS, LabCorp is clearly the investor favorite on today's list, but why? Let's find out, as we examine...

The bull case for LabCorp
Why might you want to invest in this runner of lab tests for doctors? CAPS All-Star BoiseKen says it's a "long term out performer in a duopoly market," seeing as it only has one rival of any real size (Quest Diagnostics).

SugarAddict5 likes the company's "strong fundamentals," and thinks that with a "growing patient base [LabCorp] should outperform based on industry leading profitability."

And CAPS member 94impala agrees, pointing to "the population/age curve," and suggesting investors "watch what happens with health care reform. Testing demand will go up and [LabCorp] is my pick."

Wall Street agrees. On average, analysts believe LabCorp will be able to ride its industry-leading position to 12.4% annualized profits growth over the next five years. This, plus the business's deep moat, probably suffices to justify LabCorp's 14.4 trailing P/E ratio. And when you consider that LabCorp is considerably more profitable than its GAAP-calculated income statement suggests -- generating $700 million in free cash flow versus reported earnings of just $585 million -- the price-to-free cash flow ratio on this one dips to just 11.8 times.

Foolish takeaway
So... 11.8 times FCF for a 12.4% grower? That may not be cheap enough to win LabCorp the title of The Motley Fool's Top Stock for 2012, but it's plenty cheap to give LabCorp room to pop.

Disagree? Feel free. Tell us what you think about LabCorp's prospects on Motley Fool CAPS.

The article 5 Superball Stocks originally appeared on Fool.com.

Motley Fool newsletter serviceshave recommended buying shares of Quest Diagnostics and Laboratory Corporation of America Holdings, 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. 342 out of more than 180,000 members. The Fool has adisclosure policy.We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days. 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.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners