4 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?
CAPS Rating (out of 5)
InvenSense (NYS: INVN)
3D Systems (NYS: DDD)
Baidu.com (NAS: BIDU)
Molycorp (NYS: MCP)
Companies are selected by screening on finviz.com for abrupt 5% or greater price drops last week. Recent price and 52-week-high data provided by finviz.com. CAPS ratings from Motley Fool CAPS.
Four super falls -- one superball
Last week was another rough one for investors. Across the length and breadth of the markets, some 5,000 separate stocks exited the week lower than they entered it -- and that was the good news. The bad news was that many of these companies were literally decimated. Some 500 stocks lost 10% (or more) of their market cap over five days of frenzied trading, including each of the stocks named above. So what went wrong?
Let's start with returning champion Molycorp, making the big-drop list for its second week in a row. (Congratulations?) Last time around, as you may recall, Molycorp was suffering the aftereffects of a revelation that the SEC was questioning the "accuracy of the Company's public disclosures." Now the company's getting hit with a double whammy as The Wall Street Journal warns of a "sharp fall in prices" of rare earth minerals. Prices of some rare earths, says the Journal, are down "as much as 80%," and the situation's starting to look a lot like "a supply glut." Not good news for Molycorp.
At the same time, another big-name journal -- Forbes this time -- was criticizing Baidu for fumbling the transition to mobile search ... even as rival Qihoo 360 (NYS: QIHU) appears to be making a move there with a new mobile browser. If you're looking for a reason why Baidu recently hit a 52-week low, look no further.
And 3D Systems? You know all about this one already. Over on SeekingAlpha.com, someone's been taking potshots at 3D's accounting for revenue growth. The criticisms might or might not be valid. One thing's for certain, though: With 3D shares still costing 56 times earnings, investors don't have a very big margin of safety if the criticisms prove correct, and growth isn't as gangbusters as it's been made out to be.
And finally, we come to the stock on this week scoring highest on CAPS. The single stock out of the four above the Foolish investors has the best chance of bouncing back: InvenSense.
The bull case for InvenSense
Like the other stocks on today's list, InvenSense had a bad time of things last week, losing 13% of its market cap over five trading days. Unlike the other stocks on the list, though, InvenSense had no bad news to report. (To the contrary, it actually scored a new buy rating from Maxim Group).
Now, that's not to detract from the bad news of last month's earnings miss. (To the contrary, I'd like to remind you about that miss, given that I pointed out warning signs ahead of the miss -- weakness in free cash flow, a declining cash balance, and a valuation that looked a tad rich). Regardless, a lot of Fools still like InvenSense quite a lot.
CAPS member nordlandr, for example, thinks InvenSense will profit from "growth in Tablets and Smartphones."
Ace CAPS player nonzerosum recently praised the company for producing "good growth" and predicted that "the mobile trend should last."
Meanwhile, odenpaul is quick to remind everyone that this is a "highly innovative, high-growth company" whose products "are used in a lot of other devices besides cell phones, including military applications."
So you can see why the stock remains popular -- indeed, why it might be more popular than ever at its new and improved (i.e. "cheaper") share price. But is the price cheap enough?
At first glance, it certainly looks that way. Selling for under $10 a share, InvenSense now costs less than 24 times trailing earnings. That seems an attractive valuation, given analyst predictions of 28% long-term earnings growth at the company.
But here's the thing: As good as earnings look at InvenSense, free cash flow at the company remains surprisingly weak. With just $25.9 million in free cash generated over the past year, InvenSense is actually only generating about $0.68 in real cash profits for every $1 of "income" it claims under GAAP. The company's enterprise value-to-free cash flow ratio of 27 implies the stock is only fairly priced today. Its price-to-free cash flow ratio, at 31, suggests InvenSense might actually be a bit overvalued.
Long story short, while you can make a case for InvenSense being undervalued, the case isn't quite as clear-cut as I'd like to see. Seems to me, there's every chance the stock -- already down -- has further to fall.
As you can see, Baidu is getting short shrift from Wall Street and CAPS members alike. Is it deserved? Regardless of your short-term view on the Chinese economy, there may be opportunity in Baidu (a.k.a. the "Chinese Google"). Our brand new premium report breaks down the dominant Chinese search provider's strengths and weaknesses. Just click here to access it now.
The article 4 Superball Stocks originally appeared on Fool.com.
Fool contributor Rich Smith does not own, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 268 out of more than 180,000 members.The Motley Fool owns shares of Baidu, 3D Systems, and InvenSense and has options on 3D Systems. Motley Fool newsletter services recommend Baidu and 3D Systems. Try any of our Foolish newsletter services free 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. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.