5 Superball Stocks Dropped Hard Last Week; Which One Might Bounce Back?
When stocks fall fast and far, they sometimes set themselves up for remarkable rebounds. The five stocks listed below all 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.
Let's meet today's contenders:
How Far From 52-week High?
(out of 5)
Clean Energy Fuels
Five super falls -- one superball?
The S&P 500 suffered another losing week, dropping 0.7% through Friday. A total of more than 4,500 separate companies exited the week at least somewhat lower than they entered it -- and several suffered much worse than the average. The five named above, for example, have all been literally decimated, losing 10% (or more) of their market cap over the five trading days through Friday. So, what went wrong?
Beginning at the bottom... Most analysts appear to blame Brazilian President Dilma Rousseff for weakness in Brazilian stocks such as Petrobras (Brazil's largest oil company). Fears that Rousseff would pull off a first-round victory in the presidential elections in Brazil, says Barron's, had investors worried that "the same policies that have failed to keep economic growth from slipping into negative territory this year" will continue for another four years. Well... good news! For now, at least, hope that Rousseff will be defeated remains alive, as the president failed to win a clear majority in Sunday's voting. The mere prospect of a runoff election, in which conservative challenger Aecio Neves might win, helped spark a rally in Petrobras' stock Monday -- so look. That's one superball that has already bounced. Will there be more?
Moving up the list, we find Allegheny Technologies shares lagging in the run-up to Q3 earnings. There have been few news items of note relevant to Allegheny in recent days, however, so that sell-off is a bit of a mystery -- unless someone knows something about the earnings numbers that we do not.
Ford? This one's a bit clearer. Last week, Ford warned that it's likely to miss earnings expectations in 2015, "thanks" largely to $1 billion in anticipated losses from Ford's European business. Until those kinks get worked out of the system, Ford shares may lag -- but the company's long-term prospects still look good. This probably explains why CAPS investors continue to give Ford stock a strong four-star rating, a better rating than Petrobras or Allegheny receive, and one denoting continued optimism about Ford stock's prospects.
And our final runner-up today is Clean Energy Fuels, the company that's building a network of natural-gas fueling stations to power the nat-gas cars of the future. Clean Energy took a big tumble last week, however, and the reason? Well, the reason actually leads us right into the stock that CAPS investors believe is...
...this week's top prospect for a bounce-back: Westport Innovations
Last week, Westport Innovations warned investors that it now expects 2014 sales to come in 25% below estimates -- estimates that had already been updated as recently as July. This entirely unexpected news chopped 25% off Westport's share price Wednesday. And yet, out of all the stocks suffering large declines last week, investors still seem to think that it's Westport that has the best chance of bouncing back. Why?
There's no doubt that "natural gas conversion has been slower than expected," admits CAPS member GreenChilePepper. Yet this investor derides Wall Street's "short attention span," and insists that despite the sales miss, "Westport is growing in multiple industries" here in the U.S., and also has potential in "consumer markets overseas, where gasoline is more expensive."
Kanga88 calls Westport "the leader in the natural gas engine industry" and argues that "at $7+ [its] market cap of less than half a billion is a steal given the hefty amount invested in R&D within recent years. Either the management delivers finally the breakeven promise in 2015, restoring its cash flow health, or else it might have to be sold."
Fellow investor Kobalt agrees, insisting that "the growth story for Westport remains in place. And if they so choose, at $500 million they are around the floor for a take private or takeout."
And these views aren't exactly outliers, either. In fact, across the Motley Fool CAPS universe, a striking 97% of investors polled rate Westport Innovations an "outperform." Are they right?
Crunching the numbers on Westport
Honestly, it's hard to say. Despite having an innovative product, and a leading position in the market for natural-gas-burning automotive engines, Westport continues to be a company with extremely light sales, no profits, and a significant rate of cash burn. Even at today's reduced market capitalization, Westport shares sell for roughly 2.5 times sales. (To put that in context, 2.5 times sales is nearly twice the valuation of profitable engine-maker Cummins.)
Profits continue to elude Westport, meanwhile. And over the past 12 months, S&P Capital IQ figures show that the company burned through $120 million in negative free cash flow. What's more, all of this has happened despite sales growing more than 50% over the past five years -- so even a rise in sales at Westport might not be enough to save it.
Granted, there's a flip side to this argument: When a company has no profits and no free cash flow today, pretty much any news (with the possible exception of last week's news) is likely to be an improvement, and has the potential of lifting the stock. But I wouldn't bet on it.
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The article 5 Superball Stocks Dropped Hard Last Week; Which One Might Bounce Back? 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. 321 out of more than 180,000 members.
Rich's reservations notwithstanding, The Motley Fool still recommends Westport Innovations -- and Clean Energy Fuels, Cummins, and Ford, too. The Motley Fool owns shares of Cummins, Ford, and Westport Innovations. 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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