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.
How Far Below 52-Week High?
CAPS Rating(out of 5)
|Infinera (NAS: INFN)||16%||$7.53||*****|
|Clean Energy Fuels (NAS: CLNE)||19%||$20.10||****|
|Westport Innovations (NAS: WPRT)||24%||$38.00||****|
|Cell Therapeutics (NAS: CTIC)||51%||$1.21||**|
|Avanir Pharmaceuticals (NAS: AVNR)||32%||$3.24||**|
Five super falls -- one superball
Stock markets slumped last week, although the Dow managed to keep head above 13,000, while the Nasdaq similarly held onto its supra-3,000 altitude. If only all investors were so lucky. Our five names today suffered 5% or more drops for the week. So what went wrong?
It wasn't always clear. For example, analysts at optionMonster seemed to blame "naked" short selling of call options for weakness at Cell Therapeutics -- as good an explanation as any, since Cell-T didn't release any bad news that would otherwise have explained the stock's weakness. And optionMonster's hypothesis was a better explanation than Avanir shareholders got. Their stock fell 5% on the week, apparently for no reason at all.
Meanwhile, investors in natural gas-as-vehicle-fuel plays Westport Innovations and Clean Energy Fuels were left shaking their heads in disbelief. Last week, nat-gas legend T. Boone Pickens predicted that oil will hit $148 a barrel this summer, sending already high gasoline prices right through the roof. You might think that would be good news for companies offering an alternative to gasoline as a vehicle fuel. Instead, shares of Clean Energy shed 5.5% of their market cap, and Westport went even farther south -- down more than 7% in an abbreviated trading week.
Now, judging from the stocks' four-star ratings, a lot of Foolish investors expect Clean Energy and Westport to bounce right back. But there's one stock on this week's list that our CAPS members like even better. Let's find out about it, as we dive right in to ...
The bull case for Infinera
A maker of optical networking equipment that helps the Internet's "series of tubes" run faster, Infinera is basically a play on the rise of high-speed Internet communications. As CAPS member halley12 explains, "the pipeline for the Internet is only going to grow. Speed and size are key components. Once discovered, someone will buy" Infinera.
Why Infinera? Why not Ciena or Lucent instead? As Jade2012 argues, the reason is that unlike the incumbent telecom equipment makers, Infinera is a "disruptive innovator! Watch for 100G wins."
VTDave elaborates that in broadband communications today, 10G speeds are already passe.
40G (non PIC-based) is now shipping. 100G (PIC-based) is on schedule and will generate revenue in 2012. ... In the recent past, INFN needed to heavily discount their 10G solutions to win new business. But now that these new products are coming online, GAME ON!
And all this talk aligns nicely with a recent comment from the telecom analysts at JPMorgan Chase. As described on StreetInsider.com last week, JP sees a 100G optical upgrade cycle beginning "during the last quarter of this year" and accelerating through 2013. This suggests that good news for Infinera shareholders could be closer than we think. Maybe not as soon as the upcoming April 25 earnings report, but soon.
Foolish final thought
Still burning cash, and still unprofitable, Infinera is not quite what I'd call a sure thing. But things are starting to look up for Infinera, which next year is expected to report its first "real" profitable year ever. (The company technically booked a profit in 2008 as well, but that was primarily due to an accounting quirk.) For now, the company remains what I'd call a speculative investment -- but it's one with the potential to turn into a real superball of a stock, if all goes according to plan.
At the time this article was published The Motley Fool owns shares of JPMorgan Chase Infinera, andMotley Fool newsletter serviceshave recommended buying shares of Westport Innovations, Infinera, and Clean Energy Fuels, but Fool contributorRich Smithdoes not own shares of (or short) any company named above.You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 375 out of more than 180,000 members. 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.