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 170,000 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:
Drop from 52-week high
(out of 5)
|IPG Photonics (NAS: IPGP)||28%||$56.50||*****|
|Hewlett-Packard (NYS: HPQ)||38%||$26.64||***|
|Sina Corp (NAS: SINA)||58%||$61.41||***|
|Human Genome Sciences (NAS: HGSI)||72%||$8.47||**|
|E-Commerce China Dangdang (NYS: DANG)||78%||$6.32||*|
Companies are selected by screening on finviz.com for abrupt 5% or greater price drops last 5 trading days. 52-week high and recent price data provided by finviz.com. CAPS ratings from Motley Fool CAPS.
Five super falls -- one superball
So close. So close. The stock market tacked on a small gain last week, but still stalled out and fell short of the bulls' hoped-for "Dow 13,000 / Nasdaq 3,000" closing prices. Instead, four of the stocks named above ended the week with share prices literally decimated -- down 10% in just four days. So what went wrong?
In a word: Earnings. Investors in "China's Amazon.com," Dangdang, had only one word to say in response to Thursday's earnings news. ("Dang!") The company beat revenue expectations, but fell a dime short on earnings -- and lost 10% of its market cap intraday. Likewise, Hewlett-Packard got whacked after reporting a 7% slip in sales, and a 44% collapse in earnings for its fiscal first quarter 2012.
In contrast, neither Human Genome Sciences nor Sina Corp have reported earnings yet (both are due out tonight). Even so, they got hit with a pair of preemptive downgrades that sent their stocks tumbling. Collins Stewart downgraded Human Genome, while British banker Barclays put the hurt on Sina.
And the top stock on this week's list, IPG Photonics? Curiously, while investors subtracted 6% from its market cap over the last five trading sessions, there doesn't seem to have been any particular reason for it. IPG reported earnings a good two weeks ago (profits up 15%, thanks for asking). It's not expected to report earnings again for another three months. So no bad news, and no threat of future bad news any time soon, either. Could this mean IPG will bounce back?
The bull case for IPG Photonics
A lot of smart Fools think so. CAPS member Jade2012 calls IPG the "Market Leader -- Industrial Lasers," while SmoothHughes believes it's "a disruptor in the laser market."
Analysts predict that IPG will post an average of 24% annual profit growth over the next five years -- not bad for a stock that sells for only 23 times earnings. And if you back out IPG's $180 million in net cash, the valuation on this one looks even cheaper. With numbers like these -- and no apparent reason for the stock's drop last week -- it's entirely possible that IPG will bounce right back from this sell-off.
Foolish final thought
That said, there are still reasons to be cautious about IPG. While net profit is way up at the fiber-laser maker, actual free cash flow is less than one-third as robust as the company's GAAP income statement suggests. Free cash at IPG has dropped each year for the last two years. At $34.3 million for the last 12 months, cash is not being generated at IPG at a slower pace than at any time since the crisis year of 2008.
I'm not a huge fan of companies with declining free cash flow, so I won't be buying this one any time soon. For Fools who are willing to overlook the company's cash-flow problems, though, and who trust in Wall Street to focus on the firm's rising revenue and earnings as reasons to promote the stock, last week's sell-off may offer a good chance to catch a quick bounce-back at IPG Photonics.
At the time this article was published Fool contributorRich Smithdoes not own shares of (nor does he short) any company named above. You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 407 out of more than 180,000 members. The Fool has adisclosure policy.The Motley Fool owns shares of IPG Photonics, andMotley Fool newsletter serviceshave recommended buying shares of IPG Photonics (and Sina, too). But neither of these firms is our absolute favorite stock. To find out which company wins this honor, read our new, free report: "The Motley Fool's Top Stock for 2012."