5 Superball Stocks

"'Don't catch a falling knife' ... The idea of buying a former superstar stock at a discount price certainly has its attractions, but you've got to make sure you catch the haft -- not the blade."

So runs the thesis of my recurring Fool column "Get Ready for the Bounce," in which we search among the wreckage of Mr. Market's overturned cutlery drawer, hoping to find future winners in a pile of 52-week losers. But do we really need to sit around for a whole year, waiting for a potential bouncer?

I say nay. Sometimes, stocks fall far in far less time than a year -- and like a superball dropped from the balcony, the harder they fall, the higher they bounce. Today, we're going to look at a few equities that've suffered dramatic drops over the past week. With a little help from the 140,000 members of Motley Fool CAPS, we hope to find an opportunity or two for you:

Stock

How far from
52-week high?

Recent Price

CAPS Rating
(out of 5)

KHD Humboldt Wedag (NYSE: KHD  )

(56%)

$10.29

*****

Research In Motion  (Nasdaq: RIMM  )

(32%)

$68.91

**

Geron  (Nasdaq: GERN  )

(28%)

$6.61

**

DryShips  (Nasdaq: DRYS  )

(86%)

$6.36

**

Toll Brothers  (NYSE: TOL  )

(24%)

$19.96

*

Companies are selected by screening on finviz.com for abrupt 10% or greater price drops over the past week. 52-week high and recent price data provided by finviz.com. CAPS ratings from Motley Fool CAPS.

Five super falls -- one superball
Each of these companies took a terrific tumble last week. Beginning at the bottom, Toll Brothers' decline was sparked by reports of insider selling at the company, and confirmed later in the week by reports of declining home sales in August. Macro news was also to blame for DryShips' midweek decline, when a dip in the Baltic Dry Index likewise torpedoed shares at Eagle Bulk (Nasdaq: EGLE  ) , Excel Maritime (NYSE: EXM  ) , and basically, every other company that owns a boat.

In contrast, the damage at Geron and RIM owed more to company-specific actions. Geron announced a dilutive equity issuance Wednesday, while RIM stumbled over a lousy earnings report and weak guidance.

But that still leaves us with the real mystery of the week: KHD Humboldt Wedag. The engineering company had no bad news to report -- no real news of any sort in fact. Yet its stock slid more than 10%. So is this foreshadowing of bad news to come -- or opportunity knocking?

Some of the very best investors on CAPS believe the latter. Let's find out why.

The bull case for KHD Humboldt Wedag
CAPS All-Star TrafficDesign calls KHD "one of the best stocks out there for the energy materials processing sector, and is in the top 10 for industrial equipment manufacturing. A solid investment for those who know what they are looking at."

And what exactly are we looking at? Fellow All-Star wrongnumber points out that landing contracts to design cement factories in a recession is tough work, and: "It has been difficult for KHD to maintain its performance in the face of shrinking capital outlays around the world." That said: "As financial stimulus programs begin to generate demand for cement and basic materials, KHD should take off."

So basically, we're looking at a window of opportunity here, folks. The Fool's own TMFmrquakeroats calls KHD "a classic Benjamin Graham-type investment. Market value is less than net cash on the balance sheet. Management has a good capital allocation record. They are disciplined and will only spend cash on projects that yield a satisfactory return on invested capital."

But how disciplined should investors be about waiting for the right time to buy this stock? I'd love to tell you, but right now I'm too busy salivating.

Is KHD facing tough times today? No doubt. The company burned cash in three of the last four quarters, and is soaking in negative free cash flow for the year. But this situation is far from the norm. Over the past five years, KHD averaged $71 million in annual cash production. Once the economy turns around, I see no reason to doubt KHD's ability to resume its profit-earning ways.

Meanwhile, here in the slump, we find KHD selling for less than the cash on its books ($311 million market cap, $349 million net cash). In other words, an investment in KHD today offers you the chance to buy dollar bills for $0.89 apiece -- and get a high-quality business tossed in for free. Ginsu knives, pffft! Gimme the superball!

Time to chime in
Personally, I'm champing at the bit to get in on this action. However, under the rules of the Fool's reinforced concrete disclosure policy, I'm required to wait 10 days before acting on this opportunity. You, however, are under no such restriction.

So while I'm sitting here, cooling my heels, take a look at KHD and see what you think of the company's prospects. Then click over to Motley Fool CAPS and tell us what you think. If you see a reason to hold off on buying, I'd love to hear it. Contrariwise, if you decide this story is as good as it looks, I'd love to hear that, too -- and so would everybody else.

Motley Fool CAPS: It's fun, it's free, and it just might make you famous.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he was recently ranked No. 614 out of more than 140,000 members. The Fool has a disclosure policy.

KHD Humboldt Wedag International has been recommended by both Motley Fool Global Gains and Motley Fool Hidden Gems, and the Fool owns shares as well.


Read/Post Comments (3) | Recommend This Article (18)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 28, 2009, at 12:34 PM, plange01 wrote:

    at $67 a share all of a sudden rimm is a great bargain when compared to far overpriced apple!

  • Report this Comment On September 28, 2009, at 12:39 PM, slidexperto wrote:

    Watch out for (EK) Eastman Kodak will rise soon to $8.00 when December 2009 comes. They pirated some of the best hi-tech people in other companies to lift up their products...good luck guys.

    Watchout for Xerox looks like it is heading to $5.00+ when this Friday's comes, better sell your Xerox if you have and buy $5.00 soon.....good luck!

  • Report this Comment On September 28, 2009, at 3:07 PM, hhpn wrote:

    you gotta realize that every single Analyst on the Walls knows that damn RIMM usually estimates their profit much lower than they could (so they can easily meet and beat next quater huh, stupid RIMM, isn't it) they (analyst) never question on RIMM under estimated but this quarter. why? it is easy to understand cause RIMM has gone up to quick and too far purposely, so this is time for them to knock that RIMM down to make profit and to look for chance to acquire RIMM back with a much lower price. i personally cant guess how low it can go given the current condition of market and economy, if GDP and consummer report come out good tues and wed, i think Rimm will make its way back to be on the headline for good.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 994201, ~/Articles/ArticleHandler.aspx, 10/24/2014 3:59:39 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement