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 From 52-Week High?
CAPS Rating(out of 5)
|3D Systems (NYS: DDD)||11%||$29.61||*****|
|AK Steel (NYS: AKS)||67%||$5.32||***|
|Deckers Outdoor (NAS: DECK)||59%||$48.61||***|
|VirnetX Holding (NYS: VHC)||23%||$32.30||*|
|Zagg (NAS: ZAGG)||41%||$10.05||*|
Five super falls -- one superball
You might be surprised to learn that despite a pretty strong stock market rally last week, more than 2,900 stocks still managed to decline in price. Some took significant tumbles, including the five in our list -- each of which lost at least 5% of its market price.
Why? The reasons weren't always clear. On one hand, AK Steel got hit by a pretty harsh downgrade from Goldman Sachs, which blasted the company for carrying a "highly leveraged balance sheet, high pension funding requirements, high capex to fund its raw material strategy" -- and today appears to have been proved right, as AK shares slide on weak earnings.
On the other hand, though, neither Zagg nor VirnetX Holding had any particularly bad news to report last week. (Yes, Apple did unveil a new "smart case" for its iPad, but the thing's already getting pretty mixed reviews and doesn't seem a mortal threat to Zagg's "Zaggfolio" accessory.) Similarly, news of another shareholder derivative lawsuit against Deckers, alleging, basically, that it's evil for letting its stock price go down, is hardly "news" at all.
And of course, three-dimensional printer company 3D Systems was the fourth company that lost market cap for no reason in particular. It's also the sole five-star-rated stock on today's list, which is why today we'll be taking a closer look at ...
The bull case for 3D Systems
CAPS member hecticelectron believes that "rapid prototyping," such as 3D's products enable, "is already a boon for industrial design. Long term, as machines become smaller and cheaper, 3-D printing has the potential to be a revolution as big as desktop publishing was in the '80s and '90s."
EmmyKaye calls this a "revolution in manufacturing low volume products customized to individual tastes," while PoorSenator sees it as a "paradigm shift in manufacturing away from metals toward polymers" and adds that "the need to cut costs on large factory floor space favors 3-D printers."
As a result,marketk predicts that 3D Systems "will largely outperform the market as more companies adopt rapid prototyping systems in order to shorten their product development cycle."
Priced at 44 times earnings, 3D is a bit cheaper than archrival Stratasys (P/E: 51). 3-D's also growing faster and sports higher quality of earnings, in the form of free cash flow that's fully 15% better than its reported net income (Stratasys' free cash flow, in contrast, amounts to barely half of reported income). So are these Fools right? With shares up 66% over the past year, so far they have been -- but the future looks less certain.
Here's why: 3D's 38-times-free cash flow valuation looks a mite pricey today, even in light of 22% long-term growth expectations. Factor in a sizeable slug of debt (about $80 million, net of cash) and the stock looks overpriced to me.
In short, while 3-D printing may well be a trend with legs, 3D's stock looks likely to take a breather. It's not as overpriced as its main rival, but it's still no bargain, and it's unlikely to make much of a bounce off last week's lows. If it's a bounce you're looking for, you'd be better off checking out the stocks discussed in our latest free research report: "These Stocks Could Skyrocket After the 2012 Presidential Election."
At the time this article was published 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. 342 out of more than 180,000 members. The Fool has adisclosure policy.The Fool owns shares of and has written calls on 3D Systems.Motley Fool newsletter serviceshave recommended buying shares of Goldman Sachs, Stratasys, 3D Systems, and Deckers Outdoor and writing naked calls on Zagg. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.