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)

Gilead Sciences (NAS: GILD) (17%)$47.00*****
Exelixis (NAS: EXEL) (55%)$5.78****
Cliffs Natural Resources (NYS: CLF) (34%)$66.72****
MEMC Electronic (NYS: WFR) (69%)$4.70***
Suntech Power (NYS: STP) (66%)$3.65***

Companies are selected by screening on finviz.com for abrupt 5% or greater price drops last week. Fifty-two-week high and recent price data provided by finviz.com. CAPS ratings from Motley Fool CAPS.

Five super falls -- one superball
Stock markets did pretty well last week, tacking on a percent's worth of gains and heading into the holiday weekend with dreams of a 13,000 Dow. Not all stocks fared so well, however, and up above you see five names that managed to lose 5% or more of their value. So what went wrong?

The reasons varied and didn't always make much sense. On the one hand, silicon wafer maker MEMC Electronic reported a massive fourth-quarter loss Wednesday and warned of weak revenues in the current first fiscal quarter as well. This news spooked the rest of the solar market, sending Suntech Power tumbling as well. Management at Suntech managed to mitigate the damage with a "preannouncement" that its own Q4 revenues did not fall as badly as many people were expecting. But the shares still ended down for the week.

Earnings were to blame, too, at miner-49er Cliffs Natural Resources. Actually, the firm's Q4 profit was down even more than that -- about 54%, year over year. In contrast, Exelixis had no earnings to report. Instead, the cancer researcher announced a flotation of 12.65 million shares of stock, netting $65 million in new capital from the event. Unfortunately, while Exelixis can certainly use the money, at the rate it's been burning cash lately, it could blow through the windfall in as little as four to five months...

The bull case for Gilead Sciences
Not so with our highest-star-rated stock. Indeed, Gilead Sciences is a veritable cash cow, generating perhaps $3.4 billion or more in free cash flow over the past 12 months. It's also a very popular stock here in CAPS-land, with our members on average giving it a five-star rating. Why?

All-Star CAPS member healthcarevalue argues that Gilead's focus on "niche products ... make the company's growth prospects attractive" and likes the company's "infectious disease focus, specifically HIV, chronic hepatitis, and influenza."

pcstuck adds that Gilead's "diversification into cancer treatment could create huge new revenue streams. Clean balance sheet and still room to grow."

And CAPS member sunnyspot praises Gilead for making "intelligent acquisitions," and argues that "a stellar management team and a bulging pipeline spell rising fortunes for this company."

But if all this is true, why did the stock suffer a 14% sell-off last week? Why is it down again today? The answer is that on Friday, the company had to confess that its GS-7977 drug has proven less than wholly effective in treating patients for hepatitis C. A majority of patients treated with the drug, after initially showing promise, relapsed and began showing symptoms of the disease within a month after discontinuing treatment.

Gilead's still golden
Given the high hopes investors had placed on GS-7977 as offering a stand-alone cure to hepatitis C, this was disappointing news. But I don't think it justified Friday's sell-off, and I'll tell you why. First off, Gilead says it thinks it can fix the problem by either using a longer course of treatment, or perhaps boosting its drug's effectiveness by combining it with other drugs in its pipeline. The company may not have succeeded on its first attempt, but it can certainly "try, try again."

Meanwhile, Gilead's new and improved (meaning cheaper) stock price gives new investors a chance to try to ride this stock's bounceback as well. At less than 13 times earnings, and with 15% long-term growth projected for it, Gilead's anything but an expensive stock. With cash in the bank, and more pouring through the door with each passing day, I'd even go so far as to call it cheap.

In fact, I'm so convinced Gilead shares are poised for a bounceback that I'm going to head right over to Motley Fool CAPS right now and recommend the stock publicly. Think I'm wrong? Follow along.

And if investing in high-risk, high-potential health-care stocks doesn't frighten you, take a look at the Fool's new -- and free! -- report on the sector. Learn how you, too, can Discover the Next Rule-Breaking Multibagger.

At the time this article was published Fool contributor Rich Smith does not own shares of (or short) any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 387 out of more than 180,000 members. The Fool has a disclosure policy.The Motley Fool owns shares of Exelixis. Motley Fool newsletter services have recommended buying shares of Gilead Sciences and Exelixis. 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.

Read Full Story