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)
Thompson Creek Metals (NYS: TC)
Cliffs Natural Resources (NYS: CLF)
Solazyme (NAS: SZYM)
Dynavax Technologies (NAS: DVAX)
Direxion Financial Bear 3X (ASE: FAZ)
Four super falls -- one superball
Stocks appear to have caught the holiday spirit. In an abbreviated trading week, the S&P 500 gained an impressive 3.6% last week, recrossing the 1,400 threshold for the first time in more than two weeks. Not all investors were so lucky, however. In fact, more than 1,100 separate stocks exited the week lower than they went into it -- including all five named up above.
So what went wrong? In at least one case, the answer's obvious. Bottoming today's list is the Direxion Financial Bear 3X ETF. You wouldn't expect an ETF, that's designed to profit from a falling market, to do well when the S&P gains nearly 4%, and true to form, the Direxion Bear fund got hammered last week.
Similarly clear is the reason behind Dynavax's implosion. As fellow Fool Sean Williams explained last week, Dynavax got wiped out last Friday after an FDA panel praised the efficacy of the company's "Hepislav" hepatitis-B vaccine... but panned its safety data. Sean thinks Dynavax shareholders have another year to wait for more clinical trials to yield better safety data before Hepislav stands a chance of getting final FDA approval. Investors, predictably, were disappointed to hear that.
Speaking of disappointment, shareholders of Solazyme have to be disappointed that their stock couldn't contain its post-earnings momentum of two weeks ago. The company had no bad news to report last week -- certainly nothing to explain a 12% drop from the $7.80-a-share Solazyme commanded after reporting its Q3 numbers. Then again, given that those numbers weren't all that impressive (a 4% decline in revenues, and a $0.37-per-share loss), maybe a price relapse isn't that surprising after all.
Finally, turning to the commodities markets, we've got two stocks posting weak results for the week -- but scoring high among CAPS members nonetheless: Cliffs Natural Resources, down 10% since last Friday on news that it's cutting production in response to weak commodities pricing, boasts a four-star rating on CAPS. Thompson Creek Metals, a bona fide five-star stock, is down 6% after announcing a $350 million bond offering.
That doesn't sound like such bad news on the face of it. And Thompson Creek is the top-ranked stock on today's list. Could last week's sell-off be opportunity knocking? Let's find out.
The bull case for Thompson Creek Metals
CAPS memberoceaninvestor introduces us to Thompson Creek as "a mining company with many mining projects expected to earn high revenues. The stock is at an all time low because of cash flow issues, and because their main project wont complete until late 2013 but their financials look good and they will likely finish on time."
WillyT41, too, is betting that Thompson Creek's "Mt. Milligan mine ... on schedule [for completion] in Q3 2013 [to] propel the stock higher." According to Willy, "a rebound in moly prices ... can only provide additional upside."
Fellow CAPS member EndOfLine admits that "the cost per pound of ore is accelerating downward," but believes it's got to stop sometime, and "this company is solidly on the cusp of coming out of the doldrums."
In essence, the bull thesis for Thompson Creek appears to be a "what goes down, must come up" argument -- which is pretty appropriate for stocks appearing in this column.
When will the stock turn up? Most investors seem to be betting on late 2013, when the new mine comes on line. This also jibes with analyst estimates, which have the stock trading at about eight times what it's expected to earn next year.
That certainly sounds cheap enough. My main worry is that while it's possible Thompson will earn a profit a year from now, it's certain that right now the company is losing money, and burning vast amounts of cash. Over the past 12 months alone Thompson Creek burned through $832 million in negative free cash flow. Its recent bond offering, the one preceding last week's sell-off, was necessitated by the company's failure to generate cash. It's also guaranteed to increase Thompson's debt load -- already at $300 million, net of cash.
Will Thompson Creek ultimately make back the money it's sunk into building its new mines? Maybe. But it's been three years since the company generated any free cash whatsoever from its business. Three years in which cash outlays wiped out all the cash Thompson generated in the preceding four years (2006-2009) -- and more.
Long story short, it's possible Thompson will bounce back. But probably not soon. Before a bounceback can happen, Thompson's got to climb out of the cash-burning, debt-filled hole it's dug for itself.
Direxion led off today's list of last week's losers -- but not all ETFs fare so poorly. To learn about a few ETFs that have great promise for delivering profits to shareholders in a recovering global economy, check out The Motley Fool's special free report,"3 ETFs Set to Soar During the Recovery." Just click here to access it now.
The article 5 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. 277 out of more than 180,000 members. The Motley Fool owns shares of Solazyme. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.
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