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)
|National Oilwell Varco (NYS: NOV)||24%||$65.53||*****|
|SandRidge Energy (NYS: SD)||49%||$6.76||*****|
|E*TRADE (NAS: ETFC)||57%||$7.72||****|
|Silver Wheaton (NYS: SLW)||38%||$29.18||****|
Companies are selected by screening on finviz.com for abrupt 10% or greater price drops over the past week. Recent price data and 52-week highs provided by finviz.com. CAPS ratings from Motley Fool CAPS.
Five super falls -- one superball
Last week was a rough one for stock investors, as shareholders in nearly 5,000 companies (yes, you read that right) ended the week poorer than they began it. Hundreds of stocks -- including the five named here -- were literally decimated, losing 10% or more of their market cap in just a few short days. So what went wrong?
At JDS Uniphase, your guess is as good as mine. The telecom-equipment maker really didn't have any bad news to tell us last week. On the other hand, JDS rival Ciena did get hit with some pretty discouraging Wall Street commentary, while investors have begun muttering the "B" word -- bankruptcy -- about Alcatel-Lucent (NYS: ALU) . So perhaps it's a guilt-by-association thing going on at JDS.
The situations at Silver Wheaton and E*TRADE are a little clearer: Silver prices have been looking weak lately. Consequently, silver miners such as Silver Wheaton are getting punished. Similar short-term concerns have shares of E*TRADE selling off on worries that daily average retail trades (DARTs) dropped 11% last month. In both instances, we're seeing traders sell off these stocks on mere short-term concerns, ignoring longer-term prospects -- but at least the sales make some sense.
As you can see from the companies' respectable three- and four-star ratings on CAPS, many investors prefer to take a longer and more optimistic view on these stocks. But there are two others that they like even better: five-star oil plays National Oilwell Varco and SandRidge. Of the two, I prefer National Oilwell, because it generates more free cash than does SandRidge. (Indeed, SandRidge has never managed to generate free cash flow at all.) That's why today we'll be taking a closer look at ...
The bull case for National Oilwell Varco
CAPS member rhcole calls this oil drilling equipment provider a "solid company" showing "serious growth already." Our CAPS member continues: "I believe it has potential to be an even better growth stock in the future."
And while the stock's been "beat down on energy concerns" arising from the European crisis, CAPS member bhughes1001 believes the business "will continue to outperform" going forward.
All-Star CAPS member dspl4Js thinks National Oilwell Varco is a great way to play this long-term trend. "There will never be enough oil," dspl4Js writes, and "with the world population increasing at the rate it is there will only be more need for the most widely used energy source. Highly profitable, well managed, growth prospect."
I agree. And I also agree with our Foolish CAPS community that National Oilwell is bound to bounce back from its current lows. Already, the stock sells for a significant discount to the price-to-earnings ratios at competitors such as Schlumberger (NYS: SLB) and Weatherford (NYS: WFT) , even though National Oilwell boasts a balance sheet brimming with cash -- while its rivals are swimming in debt. At less than 15 times earnings, the stock's a bargain if National Oilwell can achieve the 16% long-term growth rate that Wall Street's set for it.
Foolish final thought
In fact, National Oilwell Varco may be an even better bargain than it looks. In addition to its low P/E and high cash balance, the company generated free cash flow superior to what it reports as net earnings over the past 12 months -- a claim neither Schlumberger nor Weatherford can make. I believe that with a 15 P/E ratio, a P/FCF ratio even lower, no debt on its balance sheet, and strong double-digit growth ahead of it, National Oilwell offers us a good bargain at today's prices -- and a chance at superball returns in the future.
Drilling for more great bargains in the oil patch? Look no further. Read our new -- and free! -- report on the industry, and we'll tell you all aboutthree stocks you can buy in a world of $100-a-barrel oil.
At the time this article was published Fool contributorRich Smithowns no 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. 339 out of more than 180,000 members.The Motley Fool owns, andMotley Fool newsletter serviceshave recommended buying, shares of National Oilwell Varco. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Fool has adisclosure policy.