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?
|Boston Beer (NYS: SAM)||(23%)||$77.58||*****|
|Qihoo 360 (NAS: QIHU)||(38%)||$22.45||**|
|Clearwire (NAS: CLWR)||(69%)||$2.70||**|
|Sprint Nextel (NYS: S)||(50%)||$3.25||**|
|Eastman Kodak (NYS: EK)||(52%)||$2.87||*|
Companies are selected by screening on finviz.com for abrupt 10% or greater price drops over the past week. 52-week high and recent price data provided by finviz.com. CAPS ratings from Motley Fool CAPS.
Five super falls -- one superball
As markets closed on Wall Street, and umbrellas opened in anticipation of the storm, investors nevertheless breathed a sigh of relief. For the first time in a long time, Mr. Market had a good week. In fact, the S&P 500 closed 4.7% higher -- but not everyone was so lucky. Up above, you see five stocks that got absolutely crushed last week. Which do you think has a chance of bouncing back?
Beginning at the bottom, Eastman Kodak took a tumble early in the week, and never quite recovered. Investors still wonder whether the company's patent portfolio may be worth more than the company that owns the patents. But if Kodak succeeds in selling its IP ... what then? I don't know about you, but it's been a long time since I last bought a roll of film. Investors may be right to worry that Eastman Kodak won't be much of a business once its patents are all gone.
And speaking of bad businesses, did you hear what happened to Clearwire? A report out of Bloomberg spawned multiple musings over whether the company might be about to default on its debt. Clearwire-backers, and Clearwire's PR team, moved quickly to quiet the rumors -- but so long as Clearwire remains loaded with debt, and burning cash, worries over the company's future will persist. (That's not particularly good news for Sprint, either, as investors ponder the possibility that Clearwire may have to hit up its parent company for additional financing.)
Qihoo? More like "Qi-who?" Just a couple weeks ago, the Chinese Internet browser maker was riding high on news of a blowout earnings report. Last week, though, investors gave Qihoo the cold shoulder, and hopped off the rollercoaster. Fickle, fickle ...
That stands in clear contrast to the loyalty investors seem to be showing Boston Beer. Oh, sure, the shares are slumping. But judging from the five-star rating CAPS members still give the stock, a cheaper price just makes investors like Boston Beer all the more. Why?
The bull case for Boston Beer
fightingfinn sings the praises of Boston Beer: "Great beer with a management team geared toward ensuring a quality product meets consumers. Fresh beer program will be a drag on earnings untill the kinks are ironed out, then expect the big brewery with the microbrew taste to show shareholders some love."
CAPS All-Star TMF1000, agrees, arguing that "the growth thesis where SAM capitalizes on the trend toward premium beers in my opinion is still intact."
And CAPS member JTMcGee sees "tons of room for growth, and at a price point that puts it in between super premium and the cheapest beers. Great marketing, great brand. ... Potential buyout play; LBO even."
Why would another company want to buy Boston Beer? Frankly, it's "cheap." On the surface, SAM sports a P/E ratio not unlike Anheuser-Busch InBev's (NYS: BUD) 18 times earnings, and exceeding Molson Coors' (NYS: TAP) 12 times earnings. But Boston Beer offers advantages that neither of its larger-capped rivals can match.
For one thing, Boston is the only debt-free beer company of the three, with $66 million in cash on its balance sheet, and not a drop of debt. (By way of comparison, Coors is about $800 million in the hole, while InBev is lugging around $40 billion in net debt.) Meanwhile, Boston is also quite a bit more profitable than it looks.
While reported "net income" for the past 12 months comes to just less than $60 million, SAM's cash flow statement shows that free cash flow for the same period was 13% higher -- $68 million. As a result, the stock's price-to-free cash flow ratio hovers around 15 today, while long-term growth estimates predict that SAM will grow its profits at nearly 23% per year for the next five years.
Three cheers for cheap beer!
So to recap, this beer company:
- sells for the same P/E as the "king of beers" ...
- but with a much "less filling" debt load ...
- and free cash flow that outpaces reported income by a significant margin.
These numbers suggest to me that Boston Beer shares could be selling for as little as two-thirds of their true worth (conservatively estimated). If I'm right, then once Wall Street discovers its mistake, the shares could enjoy as much as a 50% run-up -- a "superball" bounce by any measure.
That's my opinion. What do you think? Tell us 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. 397 out of more than 170,000 members. Fools may not 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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