In my recurring Fool column, "Get Ready for the Bounce," we search for future winners in a pile of 52-week losers. But do we really need to sit around for a whole year, waiting for a fallen stock to bounce back?
Nope. Sometimes stocks fall hard, 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'll look at a few equities that've suffered dramatic drops over the past week. With a little help from the 165,000 members of Motley Fool CAPS, we hope to find an opportunity or two for you:
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Companies
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How Far From 52-Week High?
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Recent Price
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CAPS Rating
(out of 5)
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National Grid (NYSE: NGG )
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(27%)
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$38.68
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****
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Best Buy (NYSE: BBY )
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(22%)
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$37.83
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***
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GameStop (NYSE: GME )
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(33%)
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$19.21
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***
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TD AMERITRADE (Nasdaq: AMTD )
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(20%)
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$17.14
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***
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Charles Schwab (Nasdaq: SCHW )
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(22%)
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$15.45
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***
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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.
Five super falls -- one superball
Last week was a good week for investors, as the S&P 500 tacked on 2.4% over five trading days. … Er, scratch that. Last week was a good week for most investors. For as the table above reveals, a lot of investors got hit pretty hard.
The bad news began with a report from Bernstein late the previous Friday, lamenting a lack of positive catalysts for AMERITRADE and Schwab. Within days, the news got worse -- a fee cut on ETF trading at Schwab, and predictions that June results will show a 30% decline in trading volume from May, for both firms. Unsurprisingly, the stocks reacted poorly to the news.
Trouble came in twins a second time, as Best Buy reported weak results in its fiscal first quarter. Best Buy spread the pain to GameStop with an announcement that it will try to boost results by horning in on GameStop's lucrative business trading used video games. Granted, similar competitive efforts from Wal-Mart (NYSE: WMT ) and Amazon.com (Nasdaq: AMZN ) have come and gone with little effect on GameStop's business model, but the threat alone was enough to chop more than 11% off GameStop's stock price by week's end.
Four stocks. Four reasonable explanations for why they're down on the week. But what's the deal with National Grid?
The bull case for National Grid
As CAPS member TexasStud6109 pointed out last week, this U.K. and U.S. electric utility pays its shareholders a "Great Dividend of 9% +" and generates "Safe Income" for its shareholders."
CAPS member miatamiss noted last year that: "The credit crunch did present a risk to the company's ability to raise capital but this now seems gone ... Also has lots of profitable upgrade work to get done over next few years."
Most likely, CAPS member oyster2386 hits the nail on the head with this explanation for the stock's troubles: "Its fall in price because of the euro scare made me reevaluate my position." And what did oyster2386 decide after re-evaluating, you ask? "I choose to double my investment ... All of the good business reasons to buy are even better at todays prices regardless of any slow down in Europe there will always be a need for energy of some sort. With more of their income coming from the US it only makes it a better long term investment."
National Grid: shockingly cheap
I agree with the bullishness. Not necessarily because I think the U.S. is a better business environment than the U.K. To the contrary, I'm more impressed with the steps Great Britain is taking to cut its budget deficit, than with the continued pork barrel politics of our own legislators. It's for this reason that I actually consider National Grid's 50% presence in the U.K. market as a plus rather than a minus.
But the biggest plus for me, as always, are the numbers. Right now, the biggest plus in my mind is National Grid's monster 9.2% annual dividend payout. Relative to the 5%-and-change yields at rivals like ConEd and AEP, that looks downright generous. What's more, this number encompasses only 68% of the company's net income, suggesting no need for an imminent dividend cut, and even the ability to raise the payout over time. Also encouraging is that as the rest of the economy seems to be falling apart, analysts believe National Grid will be able to put together 7% earnings growth over the long term.
Combined, this works out to about a 16% total return on investment for investors, which, to this Fool, seems more than adequate to justify a purchase. But hey, that's just my opinion. What's yours?
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