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 awhile, 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?

Recent Price

CAPS Rating(out of 5)

InterDigital (NAS: IDCC)




SanDisk (NAS: SNDK)




Riverbed Technology (NAS: RVBD)




E*TRADE Financial (NAS: ETFC)




Sears Holdings (NAS: SHLD)




Companies are selected by screening on finviz.com for abrupt 10% or greater price drops last week. 52-week high and recent price data provided by finviz.com. CAPS ratings from Motley Fool CAPS.

Five super falls -- one superball
Last week was a rough one for many investors, as more than 2,000 stocks ended the week cheaper than they began it. More than 100 stocks -- including the five named above -- were literally decimated, losing 10% or more of their market cap in just a few short days. So what went wrong?

Beginning at the bottom, Sears' stock had been on an absolute tear this year, climbing from a close-of-2011 share price of less than $32 to top $49 just three weeks into 2012. But last week, it appears investors began asking the crucial question: Is there any long-term logic behind this surge? The answer being no, the law of gravity promptly reasserted itself, and Sears' stock resumed falling.

E*TRADE had a tough time of things, too. Its stock slid all week long, but it really fell off a cliff on Thursday after E*TRADE reported Q4 earnings ... or rather, Q4 losses. Declining daily average revenue trades (DARTs) and the cost of settling lawsuits had E*TRADE-ing down 15% from its pre-earnings price.

Next up: Riverbed. If E*TRADE fell off a cliff, then I guess Riverbed floated over a waterfall. It's not that Riverbed didn't do well in Q4 -- it did. But management's guidance for Q1 2012 disappointed the Street, and that sparked an 18% sell-off in the shares.

Same story with SanDisk. Sure, sales were up 19%. But profit margins got squeezed, and like Riverbed, SanDisk lost the guidance game, offering both Q1 and full-year 2012 guidance that came up short of Wall Street's expectations.

InterDigital? More like InterAnalog. Investors have been waiting for months to see the cellphone IP research shop announce a buyout, a patent sale -- something truly transformative as a result of its exploration of "strategic alternatives." Instead, management announced last week it would stick with its old business model of asking cell phone makers to pay royalties for use of its patents. Cue sell-off.

Pick a winner, any winner
Now, as you can see up above, all of these stocks enjoy strong four-star support on CAPS -- well, except for Sears, which really doesn't deserve your support. But which of them is best positioned to bounce back as the year progresses?

Each has its pluses. E*TRADE, for example, looks reasonably priced at 15 times earnings and 15% estimated long-term growth. InterDigital has a pile of cash to its credit, and a treasure trove of patents ... if it can ever figure out how to monetize them. Even Riverbed, while apparently expensive at 72 times earnings, can boast good free cash flow as an argument that it's worth buying.

The bull case for SanDisk
But to my Foolish eye, the real bargain of this bunch is still SanDisk. At 11.6 times earnings, it's clearly the cheapest stock of the five on a P/E basis. Its free cash flow, while not quite on par with reported earnings, remains robust at $861 million generated over the past 12 months. What's more, analysts have SanDisk pegged for a brisk 18% annual growth rate.

At 13 times free cash flow, SanDisk's stock looks cheap to me. Cheap enough that I've recommended it myself on CAPS. Cheap enough that I bought it. Cheap enough that I just might buy some more after the Fool's mandatory three-day cooling-off period is over.

CAPS member RagingBull0 calls SanDisk "the cheap way of getting into Apple." But did you know there are even better ways to make money off Apple's popularity? Read our new free report and discover "3 Hidden Winners of the iPhone, iPad, and Android Revolution."

At the time thisarticle was published Fool contributorRich Smithowns shares of SanDisk, and narrowly missed buying shares of Riverbed before earnings day. 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 Fool has adisclosure policy.Motley Fool newsletter serviceshave recommended buying shares of Riverbed Technology and InterDigital, as well as writing covered calls in Riverbed Technology.Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.