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 160,000 members of Motley Fool CAPS, we hope to find an opportunity or two for you:

Companies are selected by screening on finviz.com for abrupt 5% 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.

Last week offered investors a civics lesson in how government can affect (read trash) your investments. Let's review:

Legislative branch
For Visa and MasterCard, it was Congress putting the hurt on stocks. The U.S. Senate voted to cut the fees these companies are permitted to charge on debit card transactions. And while "it's a long, long journey through the capital city," requiring a complementary vote in the House and a presidential John Hancock before the bill becomes law, Visa and MasterCard both suffered serious declines with the anticipation.

Judicial branch
Meanwhile, TiVo suffered its setback in court, losing a big patent case to appellant Dish Network (Nasdaq: DISH). A federal judge ordered the trial court to reconsider a dispute over Dish's use of TiVo technology. While not yet a clear-cut loss for TiVo, it was enough to spark a 41% sell-off in the shares (and send Dish up 4%).

Execution
Last but not least, we come to the, er, execution branch. Online travel company priceline executed well in Q1, doubling its net. But the company also warned that volcanic ash in Europe, civil unrest in Thailand, and a sagging euro will combine to keep it from hitting consensus earnings targets this quarter. The news sent shares tumbling 12%. Similarly, NVIDIA -- this week's top-ranked stock -- exceeded earnings estimates in Q1, but forecast a 3% to 5% quarter-to-quarter decline from Q1's revenue level of $1 billion -- much worse than the 1% drop Wall Street was expecting.

The bad news notwithstanding, CAPS investors have voted, and the verdict is in. After its drop, NVIDIA is our most promising prospect for superball status this week.

The bull case for NVIDIA
CAPS member texasredraider94 expressed a frustration many feel about NVIDIA's lack of support: "The investment community is so short-sighted. Nvidia has several serious contributors to its future revenue growth --3-D adoption; CUDA adoption by Adobe, possibly Apple ... the GPU becoming a fully functioning CPU as well. ... I BELIEVE in NVDA's future and, therefore, I WILL be holding the shares."

The Fool's own TMFRhino, a CAPS All-Star, agrees:

There's a great long-term thesis that holds for the stock with the growth of high performance computing and some of their other growth initiatives. ... with China/Asia now as their largest market for graphics cards, I think their addressable market could grow faster than the average stock-picker might think ... The Chinese market has several favorable demographic skews such as players prefering RPG games (a genre better suited to the PC) and other Asian countries preferring RTS games (probably the genre most suited to the PC).

CAPS member Imadoc2, too, sits in the "longs" camp on NVIDIA: "institutional investors focused on Q2 instead of long term potential. Management had answers for revenue and inventory concerns. If one believes the company management, we should see some nice growth in Q3 and Q4 with a righting of the inventory."

Gaze into the crystal ball
And there's merit to that argument. In the first quarter,  NVIDIA's inventories were up less than 20% in comparison to this time, last year -- not bad for a quarter in which sales growth exceeded 50%. If management's right about growth returning in the second half of the year, NVIDIA could very well bounce back over the coming quarters.

Or not.

So here's the problem with the bull thesis on NVIDIA: Inspired by a Needham & Co. downgrade, I took a close look at NVIDIA one month ago and came away shaken. According to Needham, NVIDIA has run into some major problems with development of its ballyhooed "Fermi" chip. Only a small fraction of the chips produced so far are "fit for use," and judging from the fact that Needham didn't change its rating on the stock post-earnings, it seems that nothing NVIDIA told investors last week has convinced the analyst that the problem is under control.

If that's the case, then despite NVIDIA's assurances to the contrary, it would appear that the company's still saddled with a new chip that consumes more power than do chips manufactured by rival Advanced Micro Devices (NYSE: AMD). A chip that gives off more heat, and that costs more than AMD's offerings. A chip that, according to Needham, will cost NVIDIA "market share in the second half of the year" -- the very same quarters when NVIDIA is promising a return to growth.

Time to chime in
Something doesn't add up here, Fools. At the same time that NVIDIA's telling us everything's A-OK with its business, analysts are saying the opposite, and NVIDIA's own sales predictions suggest that Wall Street, rather than NVIDIA itself, may have a firmer grasp of where sales are heading. Until that changes, I have to conclude that the bull thesis for this stock stands on pretty weak legs.

But hey -- feel free to disagree. If you've got better insight into NVIDIA's business than I do, or than Needham, then here's your chance to show us all up. Click over to Motley Fool CAPS, and tell us why the stock's still a "buy."

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