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 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?
(out of 5)
|MAKO Surgical (NAS: MAKO)||(68%)||$14.61||*****|
|McMoRan Exploration (NYS: MMR)||(36%)||$11.87||****|
|Arch Coal (NYS: ACI)||(78%)||$6.14||***|
|DryShips (NAS: DRYS)||(46%)||$2.20||***|
|Dendreon (NAS: DNDN)||(85%)||$6.05||***|
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
A last-minute surge in stock prices Friday saved the Dow from suffering another losing week. Thanks to some good news from some big banks, the Dow managed to pull out of its nosedive and end the week five points higher than it began -- but not all investors were so lucky. Up above, you see five companies that got decimated last week as their stocks declined 10% (or more) in value. So what went wrong?
Beginning at the bottom, Dendreon got hit with a sucker-punch sell rating from Bank of America Wednesday, just weeks after the banker had made positive noises about Dendreon's prospects this year. Scarier still, Dendreon is just two weeks away from reporting Q2 earnings -- which could have some investors wondering if B of A knows something they don't.
Meanwhile, at DryShips, new reports that China is hoarding coal it's already bought -- instead of buying more -- have analysts predicting plunging transport rates for DryShips' ships. If the reports are correct, lower shipping rates would not be good news for DryShips' profits going forward. And since the company wasn't even earning a profit at current rates, it cued an 11% sell-off.
I suppose it goes without saying that lower coal demand would be bad news for Arch Coal as well. But adding terror to an already bad situation, Patriot Coal decided to file for bankruptcy last week, making a bad situation even worse.
McMoRan Exploration is another stock exploring new depths in stock price. The company lost 13% in market cap last week, ahead of today's expected earnings report. (Any minute now, we'll learn if that sell-off was justified.) Meanwhile, let's take a look at the top-rated stock on this week's list.
The bull case for MAKO Surgical
Last week, MAKO announced reduced expectations for sales of its RIO robotic surgery system, sparking a 43% sell-off in the stock. MAKO quickly bounced off its bottom, however, gaining back 7%. And judging from the stock's five-star rating on CAPS, many Fools expect to make out like bandits as MAKO climbs back to its former heights.
CAPS member PJO285, for instance, calls MAKO's 50% haircut "an over reaction ... The need for the service is there w/ knee and hip replacement surgery, especially as people are living longer and the generation of my parents (60+) are getting more and more replacement surgery done ech year. In my opinion this has created a great buying opportunity ..."
cescarbr predicts that "sales will pick up once physicians get on board with this emerging new technology."
And WilliamCrook2003 agrees that "once MAKO proves to the hospitals they will help the hospital to save money they will be able to improve their sales. I believe what MAKO has to offer is tremendous and long term this company can improve both in profits and share price."
Make a beeline for MAKO?
I hope they're right -- I really do. But the plain truth of the matter is that based on the numbers MAKO has made public so far, there's still little evidence the company can make headway. Sales are growing by leaps and bounds, yes. But so far, profits have proven elusive, with MAKO losing about the same amount ($35 million or so) each year for the past four years, no matter how much it sells.
The situation with free cash flow is even worse, in that there is no free cash being generated. To the contrary, on a trailing-12-month basis, MAKO is now burning more cash than it did in all of last year, or the year before, for that matter. In short, MAKO may be cheap-er today than it was a week ago. But it's hard to call the company actually "cheap" until it proves itself capable of earning a profit.
Rather than buy MAKO today, therefore, investors may be better off buying the company to which it's so often compared -- fellow robotic surgery specialist Intuitive Surgical. Like MAKO, Intuitive is growing sales like crazy. Unlike MAKO, Intuitive is already profitable. What's more, it's generating even more free cash flow than it claims to be "earning" under GAAP.
At 34 times free cash flow, Intuitive isn't quite cheap enough to win it top honors as "The Motley Fool's Top Stock for 2012." But it's already a better bargain than MAKO.
The article 5 Superball Stocks originally appeared on Fool.com.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. 359 out of more than 180,000 members. The Fool has a disclosure policy.The Motley Fool owns shares of Dendreon, MAKO Surgical, and Intuitive Surgical. Motley Fool newsletter services have recommended buying shares of Intuitive Surgical and MAKO Surgical.Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
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