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 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.
How Far From 52-Week High?
CAPS Rating(out of 5)
|Walter Energy (NYS: WLT)||(54%)||$63.13||****|
|Sandridge Energy (NYS: SD)||(49%)||$6.35||*****|
|Westport Innovations (NAS: WPRT)||(21%)||$25.86||*****|
|Patriot Coal (NYS: PCX)||(71%)||$8.11||****|
|Clean Energy Fuels (NAS: CLNE)||(34%)||$11.10||****|
Companies are selected by screening on finviz.com for abrupt 10% or greater price drops over the past week. Recent price data at 52-week highs provided by finviz.com. CAPS ratings from Motley Fool CAPS.
Five super falls -- one superball
Thanksgiving week wasn't a great one for stocks. Actually, it was downright miserable. The Dow Jones Industrial Average (INDEX: ^DJI) turned in its worst T-Day weekly performance since 1942, and investors in more than 5,600 companies ended the week poorer than they went into it. Many stocks -- including these five -- were literally decimated, losing 10% or more of their market cap in just a few short days. So what went wrong?
In a word: Europe. Fears that the Continent's debt crisis will destroy the global economy have markets in a panic. And because a slower economy needs less oil, natural gas, and coal to fuel its fires, energy traders are having a particularly hard time of things. The ranks of last week's losers run the gamut from Sandridge (oil) to Clean Energy and Westport Innovations (natural gas) to Walter Energy and Patriot Coal (er, coal.) Curiously, though, other investors seem to believe the world will eventually want to use some energy again. While the rest of the world is feverishly selling these stocks, CAPS members are giving them four- and five-star ratings. Are they right?
Call me a crazy optimist, but yes, I believe they are right. Whatever happens in Europe in the short term, I believe we'll eventually work through this crisis, and people will need oil, natural gas, and coal again. I believe companies in the energy industry will thrive. What's more, I see one company out of these five with a real chance of outperforming the market.
The bull case for Walter Energy
What puts Walter Energy ahead of all the rest -- and, in particular, above a certain natural-gas stock that many Fools adore? Some CAPS members think the answer is that Walter's a candidate for acquisition. Adaptivetrader, for example, says a CNBC analyst recently predicted a buyout for Walter. L0RDZ goes so far as to name a specific potential acquirer: BHP Billiton. JPAKolypse86 argues that "it's unlikely Walter will be bought," but even so, this CAPS participant thinks "This is still [a] $100 stock."
Me, I'm not going to go that far. But I still think that out of these five deeply damaged stocks, Walter has the most immediate chance for a bounceback, because it has one advantage the others lack: free cash flow. While each of Clean Energy, Westport, Sandridge, and Patriot is currently burning cash, Walter generated $290 million in free cash flow over the past year. And although that's not quite as big a number as we see claimed for net income on the company's income statement, it's enough to give Walter an attractively low price-to-free cash flow ratio of just 14.
Other numbers at Walter are similarly attractive. The company sells for a P/E of just 10.7, which is cheaper than you'll find at rival coal concerns such as Patriot or Alpha Natural Resources (NYS: ANR) , for example. Walter's also growing strongly, with most analysts predicting a 21% annual growth rate in profits over the long term.
Time to chime in
Ten times earnings, or even 14 times free cash flow -- these look like cheap multiples to pay for a 21% grower. That's the way I look at it, at least. But what do you think? Tell us on Motley Fool CAPS.
So now you know one coal stock that one Fool likes. Want to hear about a natural-gas stock that many, many more Fools like even better? Read our new -- and free! -- report: "One Stock to Own Before Nat Gas Act 2011 Becomes Law."
At the time this article was published Motley Fool newsletter serviceshave recommended buying shares of Walter Energy and Westport Innovations. Fool contributorRich Smithowns no shares of, nor is he short, any company named here. You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 299 out of more than 180,000 members. 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.