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)
|Qualcomm (NAS: QCOM)||(10%)||$53.61||*****|
|Vale (NYS: VALE)||(30%)||$24.58||****|
|Rio Tinto (NYS: RIO)||(28%)||$54.52||****|
|Yamana Gold (NYS: AUY)||(14%)||$15.06||****|
|Hecla Mining (NYS: HL)||(50%)||$5.76||****|
Companies are selected by screening on finviz.com for abrupt 5% 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
Stocks rode a roller coaster last week, but when all was said and done they rolled safely into the terminal at the end. The Dow Jones Industrial Average (INDEX: ^DJI) closed 1.4% higher for the week ... but not all investors were so lucky.
Among five of the week's worst performers that I'm looking at, the damage was worst in the metals and mining industry. Gold stocks like Yamana and Hecla Mining were particularly hard hit as investors sold off the sector in the wake of Agnico-Eagle's disappointing report. Miners of baser metals didn't do much better. With aluminum prices in the dumps, Rio Tinto announced it's putting its aluminum businesses up for auction -- at perhaps an 80% loss of what it paid for them. Meanwhile, iron miner Vale's suffering from slack demand in the steel industry.
Though all the bad news, Foolish investors remain confident that the mining industry will bounce back -- and I suspect they're right, as that's how cyclical industries work. All four of these stocks sport above-average four-star ratings on CAPS. But we also have a five-star stock available this week: Qualcomm. While we wait for the miners to get their act together, what say we give Qualcomm a closer look?
The bull case for Qualcomm
CAPS member bpr831 calls Qualcomm a "very safe, reliable stock [that] will maintain consistent growth for the foreseeable future" and added: "Qualcomm continues to be the largest chipset developer for mobile phones, they're working with Microsoft on developing new state of the art chipsets, and they're the only developer for Windows smartphones and notebooks."
All-Star investor BudandMolly agrees that it's a "leader in the smartphone chip market."
Fellow All-Star FreeFlyingFool, on the other hand, argues that "the company's valuation is reasonable given its position and the dividend's even a nice kicker."
I agree. Sure, at first glance Qualcomm looks a bit expensive at 21 times earnings, with a projected growth rate of just over 16%. But once you back out the company's sizeable cash reserves, the ex-cash valuation on this stock is just 18.5 times earnings. When you factor in the company's 1.7% dividend payout, that looks almost cheap for a company of Qualcomm's stature.
Foolish final thought
If that's the case, though, then why did Qualcomm fall so far last week? Surely there was some bad news that must upset the growth thesis, right?
Well, actually, no. That's wrong. In fact, there was nothing in the news last week to explain the drop in stock price at Qualcomm. To the contrary, the company won an important slot for its baseband chip in the new iPhone 4S. Meanwhile, elsewhere in the chip sector, Intel's (NAS: INTC) surprisingly strong earnings report suggests that business isn't going nearly as bad for semiconductor makers as the bears had feared. Things are actually looking pretty good, suggesting that even if Qualcomm can't maintain, say, the 34% revenue growth clip it saw last quarter, then at least strong mid-teens growth should be attainable.
Or at least, that's my opinion. What do you think? If you have an opinion on Qualcomm, we have a place to state your case -- Motley Fool CAPS.
After the iPhone 4S, what's the next "next big thing" in tech? Find out in our free report: "The Motley Fool's Top Stock for 2011."
Editor's note: A previous version of this article had incorrect price information for the stocks in the table. The Fool regrets the error.
At the time this article was published Fool contributorRich Smithowns no shares of any company named above. You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 316 out of more than 180,000 members.The Motley Fool owns shares of Qualcomm and Intel.Motley Fool newsletter serviceshave recommended buying shares of and creating a diagonal call position in Intel. We Fools don't 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.