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)
Five super falls -- one superball
With the S&P 500 down only a small fraction of a percent through Friday, you might think last week was only mildly disappointing for investors. Shareholders of the more than 3,100 stocks that suffered declines last week, however, might beg to differ. So what went wrong?
In several cases, the answer tracked back to a single company. As fellow Fool Anders Bylund explained Saturday, a certain company, whose name rhymes with "Snapple," has been rumored to be cutting parts orders from its suppliers. Suppliers who -- not coincidentally -- feature prominently in the list up above.
Result: Marvell moved 2% lower on Friday. Omnivision and TriQuint shares shed 3%. Qualcomm lost 5%, and Skyworks tumbled 6%.
Considering that none of the five stocks listed above had any bad news of their own to report on Friday, it seems clear their sell-offs can only be blamed on fears that their most famous customer is selling fewer iGadgets this quarter. But on the bright side, Friday's sell-off has presented investors with an embarrassingly rich selection of highly rated CAPS stocks to choose from. Which to buy, which to buy?
Let's begin at the bottom, with Marvell (dropping down again today). Priced at 14 times earnings, but projected to grow its earnings at only 8% per year over the next five years, Marvell doesn't look particularly attractive on the surface. But Marvell's got a few factors in its favor. First off, the dividend -- currently yielding nearly 3%. Second, Marvell has $2 billion in the bank (and not a lick of debt). Third and finally, the company reported "earning" only $337 million over the past year, but in fact generated $518 million in free cash flow -- giving the stock an enterprise value-to-free cash flow ratio of just 4.6.
In short, Marvell looks like a bargain, and unworthy of its recent sell-off. Now let's see how its peers stack up.
Like Marvell, TriQuint boasts a large cash stash on its balance sheet -- but there the similarities end. TriQuint is not profitable, and while free-cash-flow-positive, this company with the near-$800 market cap generated less than $2 million in actual cash profits over the last 12 months.
Rated at four-stars on CAPS, I'd say TriQuint deserves something closer to two.
I panned Skyworks for an ill-conceived buyback a couple weeks ago, but mentioned in passing that if the stock's price were to fall a bit, I might become more interested in buying. Well, careful what you wish for, but Skyworks has in fact fallen -- down about 13% since then.
Priced today just north of 19 times earnings, growing at close to 16% per year, and nearly as cash-rich as TriQuint, Skyworks is starting to look interesting. The company's still not generating quite as much free cash flow as its income statement suggests. But if the stock drops just a little bit more, or Skyworks gets its cash engine in gear, this one could turn into a very attractive buy.
Arguably the marquee name on today's list, Qualcomm is a giant in the mobile device chips industry. Its 17.5 P/E ratio and large cash balance -- $12.4 billion, with almost no debt whatsoever -- combined with a growth rate near 15%, all add up to a nice valuation on this stock.
Like Skyworks, however, Qualcomm's Achilles' heel is cash production. Currently, the only thing keeping me from buying in is the fact that Qualcomm currently generates only $0.77 in real free cash flow for every $1 it claims to be "earning" on the income statement. Improve that number, or drop the price a bit more, and like Skyworks, Qualcomm becomes a buy.
Camera-chip maker Omnivision, in contrast, is probably the only stock on today's list I wouldn't consider buying under any conditions. Five-star-rated Omnivision may be, but at a P/E ratio of more than 48, and a growth rate of 15%, the stock's easily the most expensive on today's list. Worse, Omnivision's cash machine looks well and truly broken today, with the company now burning cash at the rate of more than $180 million a year. If there's one stock on today's list I'd sell without hesitation, this would be the one.
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The article 5 Superball Stocks originally appeared on Fool.com.Fool contributor Rich Smith owns shares of Apple. The Motley Fool owns shares of Apple, Qualcomm, and TriQuint Semiconductor. Motley Fool newsletter services recommend Apple. 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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