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 Below 52-Week High?
Emerson Electric (NYS: EMR)
Travelzoo (NAS: TZOO)
Vivus (NAS: VVUS)
Clearwire (NAS: CLWR)
Rentech (ASE: RTK)
Companies are selected by screening on finviz.com for abrupt 5% 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
The Santa Claus rally was in full effect last week, as the Dow tacked on more than 3.6%. Yet despite widespread optimism, investors in hundreds of individual stocks found their stockings loaded with coal. So what went wrong?
At Rentech, the sell-off that began two weeks ago with an earnings disappointment continues. The fertilizer maker and alternative-energy concern tells investors that after a "transformative" year in 2011, 2012 is bound to be better. But few investors are buying that promise ... or the stock.
Clearwire's not doing much better. After AT&T (NYS: T) dropped its bid for T-Mobile, Clearwire stock enjoyed a brief pop. Investment banker Jefferies started covering the stock with a buy recommendation on this news, but just as the momentum was getting going, out came JPMorgan with a warning: Q4 profit margins will be weak, and Clearwire will miss analysts' quarterly subscriptions target. Result: Clearwire lost 6% for the week.
Meanwhile, Vivus got some disturbing news from the FDA concerning its Qnexa drug. And Travelzoo had no news of any sort to report -- but dropped anyway. A fitting end to a lousy year for the stock. Will it bounce back? Indeed, will any of these stocks have a better time of things in 2012 than they did in 2011?
Not according to our CAPS Community, which on balance gives all four of these names subpar marks and two-star CAPS ratings. As it turns out, there's only one stock on today's list that our investors think is poised to outperform the market in the coming year. Strangely, it's the most expensive stock on the list.
The bull case for Emerson Electric
CAPS member jareda calls Emerson "a global leader in innovative technologies that [helps] companies reduce power consumption and increase energy efficiency (reduce energy costs)" and adds that "Emerson's technologies will remain in high demand as the energy costs continue to rise."
Meanwhile, CAPS member Joulesh praises the company's "great ROE, nice growth in earnings, low P/E and GREAT CEO."
And to top it all off, alan5757 reminds us that this cheap, high quality, well-led company also pays its shareholders a "nice dividend" to own it.
It's hard to overstate the importance of that dividend. In a sideways market like the one we're currently living through, there aren't a lot of people getting rich off capital gains. Instead, what profits investors are earning, they're earning from the dividend checks they collect.
Foolish final thought
One last thing worth mentioning: At 14 times earnings, and with long-term growth rates of just over 13%, Emerson's stock looks only "fairly valued" from a PEG perspective. Add the stock's 3.4% dividend yield, and Emerson starts to look cheap. Maybe not as cheap as General Electric (NYS: GE) -- a competitor that sells for a slightly lower P/E, boasts a slightly higher growth rate, and pays a slightly higher dividend. But still, the difference between the two valuations here is ... what's the word? Ah, yes: "slight."
So while I still give the advantage to GE (and have backed that up with a public recommendation in CAPS), I think Emerson Electric is nearly as good, as well as another fine candidate for your portfolio.
Meanwhile, the Fool's all-star analysts think they've found a stock that can do better than either GE or Emerson. Find out which company our experts prefer in our new free report: "The Motley Fool's Top Stock for 2012." Thousands have already requested access and it'll only be available for a limited time. Best of all, it's free.
At the time thisarticle 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. 341 out of more than 180,000 members.Motley Fool newsletter serviceshave recommended buying shares of Emerson Electric and Travelzoo.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.
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