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.
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:
How far from 52-week high?
CAPS Rating(out of 5)
|Vasco Data Security (NAS: VDSI)||(53%)||$6.92||*****|
|Trina Solar (NYS: TSL)||(58%)||$13.39||**|
|First Solar (NAS: FSLR)||(49%)||$90.10||**|
|MGIC Investment Corp (NYS: MTG)||(81%)||$2.19||**|
|Wave Systems (NAS: WAVX)||(60%)||$2.11||*|
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
What a week. As markets melted under a late summer sun, more than 3,200 stocks declined in value. More than 160 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, investors reacted positively to Wave Systems' Q2 earnings news Wednesday. Net revenue rose 26% year over year, and as management pointed out, the firm's cash levels "increased over 200%." By Thursday, however, investors were already rethinking their optimism; despite that sales gain, the company's net loss doubled to $0.02 per share.
MGIC Investment is also losing money. The U.S.'s biggest mortgage insurer reported its fourth straight quarterly loss two weeks ago, and even the prospect of gaining market share from a suddenly hamstrungPMI Group hasn't been enough to save the shares.
Speaking of unsalvageable investments, have you seen the solar industry lately? Last week, one of the Obama Administration's biggest investments in solar power -- Californian solar star Solyndra -- filed for bankruptcy. (That's two-for-two in the past month, by the way.) The bad news just keeps on coming, and shares of First Solar and Trina Solar just keep on dropping.
In contrast, a lot of Fools believe that Vasco Data Security will soon start climbing.
The bull case for Vasco Data Security
As CAPS All-Star EnigmaDude pointed out for us back in July, Vasco recently revised its earnings guidance for full-year 2011, predicting "revenue growth of more than 40% ... as compared to expected full-year revenue growth of more than 20% announced at the end of the first quarter of 2011; and Operating margins ... are projected to be in the range of 8% to 12% of revenue."
And Vasco could just be getting warmed up. CAPS member jpmj points out how the rash of Internet hacking scandals lately proves there's "more security needed now; future = infinte growth."
And snowtiger1 believes that "security systems and IT will remain a prominent winning combination for years to come."
Why Vasco? Why now?
Even assuming all that's true, though, why might Vasco be the best way to play this trend? Well, for one thing, it's not EMC (NYS: EMC) . You've probably heard by now about the problems Vasco's archrival has been having with its RSA Security subsidiary. Certain cyber-nasties hacked into the company back in March, stealing valuable customer data and opening the door to (allegedly) multiple follow-on hacks.
Bad press for a competitor such as this can only be good news for Vasco -- and may explain at least part of its doubled revenue goals for this year. Vasco's also moving to capitalize on new trends in Internet security, for example, with last week's announcement that it's partnering with salesforce.com (NYS: CRM) to make its DIGIPASS security product available over salesforce's AppExchange.
And of course, let's not forget that at the most basic level, Vasco's stock looks quite cheap. With $17 million in trailing free cash flow, a $260 million market cap, and $85 million in cold, hard cash, this company sells for an enterprise value-to-free cash flow ratio of just 10. That's right in line with analysts' expected 10% long-term growth. If, on the other hand, Vasco can manage to maintain the kind of 40% it projects for this year, for any length of time, then that 10% growth estimate could prove very conservative indeed -- and turn Vasco Data Security into a real superball of a stock.
Disagree? Feel free. Click over to Motley Fool CAPS now and tell us why.
At the time this article was published The Motley Fool owns shares of EMC.Motley Fool newsletter serviceshave recommended buying shares of First Solar, VASCO Data Security International, and Salesforce.com.Motley Fool newsletter serviceshave recommended shorting Salesforce.com.Fool contributorRich Smithdoes not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 436 out of more than 180,000 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.
Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.