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?

Recent Price

CAPS Rating (out of 5)

Silvercorp Metals




Questcor Pharma




Mellanox Technologies




Direxion Financial Bear 3X




Direxion Small Cap Bear 3X




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.

Five super falls -- one superball
The gates opened on 2013 this week, and the S&P 500 was quickly off to the races. Over three trading days, the index of America's 500 biggest publicly traded companies booked an impressive 2.8% -- nearly a-point a day. Nonetheless, 836 separate stocks somehow found a way to lose money last week, exiting Friday trading lower than they began it on Monday. Who were they, and why did they fall?

Beginning at the bottom, we have a pair of "stocks" -- ETFs, actually -- that seemed tailor-made to disappoint in the face of a strongly rising market. Both function as outsized bets on certain kinds of underperforming stocks -- small caps and financials, respectively. Both suffered outsized losses when small caps and financials soared in response to a last-minute federal sidestepping of the fiscal cliff. Not to worry, though. After all, this year's repeat of the debt-ceiling debate is just around the corner ...

As for the other companies populating today's list, we have a couple of CAPS losers, and one that investors still think can outperform. Of the losers, Israel's Mellanox got mauled after warning that Q4 revenues could come in as much as 20% lower than previously expected. Meanwhile, Questcor added to the disappointment of the recent Michigan Blue Cross Blue Shield decision, when it announced Wednesday that it will spend $50.7 million to acquire Canadian contract manufacturer BioVectra, That's about half the cash Questcor currently has in the bank. I'm not too worried about that -- Questcor is a virtual cash machine and can easily afford the acquisition. But apparently I'm in the minority view on that.

The bull case for Silvercorp Metals
Which brings us, of course, to Silvercorp -- which was on the sharp end of a 5% haircut last week, as lawsuits questioning its accounting for silver production continue to roll in -- but which CAPS members consider a four-star outperformer regardless. Why?

CAPS member waiting4him calls Silvercorp a play on an expected "world economy cash crash," plain and simple. All-Star investor Wifeb123 points out that it's selling for a "cheap valuation and low PE."

On the other hand, my Foolish colleague TMFCop -- also an All-Star CAPS player, by the way -- has criticized Silvercorp's management for giving "specious arguments for production shortfall at the Ying mine, laying the blame primarily on workers being 'distracted' by the 'short and distort' campaign by short sellers,' and questions whether it's really true that a miner can't mine because investors are critique the company..."

And that's really what the argument boils down to on this stock. On one hand, Wifeb123 has a point about the stock's apparent cheapness. If you believe the analysts, Silvercorp shares are selling for an apparent forward P/E ratio of only 8.0! On the other hand, though, even an 8 P/E may not be a bargain if all that Silvercorp manages to accomplish over the next five years is grow earnings at the 5% rate Wall Street projects for it. What's more, if you value the stock on its trailing income and 17.9 trailing P/E, that 5% growth rate looks even less attractive.

Factor in management whose forthrightness has now been called into question, and the fact that lawyers smell blood in the water and have begun to circle the company, and I see just too much risk here to justify a "buy." While there's always a possibility Silvercorp will "go superball" and bounce right back from its recent troubles, I see just as much risk that this stock continues to deflate further.

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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. 352 out of more than 180,000 members. The Motley Fool has no position in any of the stocks mentioned. 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.

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