5 Superball Stocks

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 sometimes bounce. Today, we'll look at a few equities that've suffered dramatic drops over the past week. With a little help from the 170,000 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.

Lotsa bad news out there ...
An ebullient Mr. Market tacked another 2% onto the S&P 500's market cap last week, but not all investors were so fortunate. Beginning at the bottom, there's little mystery behind iStar's fall to earth. The commercial real estate lender announced Tuesday that it may undergo a prepackaged bankruptcy next year. Publicly uttering that "B" word was good for a 15% drop. Similarly, you'd have to be living in a cave to have missed Adobe's news last week. The company reported fine sales growth and earnings, but disappointed the Street with its prediction of a no-growth fiscal fourth quarter. Adobe promptly collapsed in the ensuing earthquake, down 20% in a day.

If you were in the loop on last week's Pulp & Paper Week story that warned of falling prices in the containerboard industry -- well, my hat's off to you. You're a more diligent student of the industry than I am, and as your reward, you probably avoided the 5% tumble at box maker Boise.

The really big story of the week, though, was Big Steel. As The Wall Street Journal revealed on Tuesday, cuts in Chinese production have curtailed supply and allowed steel prices to skyrocket. Good news? You'd think so, but multiple analysts disagreed, downgrading U.S. Steel to "neutral." Auto salvage specialist Copart also got sent to the junkyard, albeit for different reasons (an earnings report that was, shall we say, somewhat short of stainless). And yet, for some reason, Copart remains one of the favorite stocks on today's list. Why is that?

The bull case for Copart
The company's dominant position in the auto salvage market is one big plus for Copart. Earlier this year, CAPS All-Star hddad8080 called Copart "a unique business with virtually no competition."

Actually, make that "a unique and growing business with no competition." CAPS member minnmex believes that "as more folks roll over the current car inventory for more efficient models, [Copart] will benefit from selling used cars, parts, and scrap in an end-to-end deal."

Which leads Oley68 to gush: "Love the numbers: Lots of cash with no debt equals room to grow when they are ready. Love how they are expanding overseas because there is lots of room for growth there ..."

Good profits come to those who wait
I'm not quite as enthusiastic as Oley68. Selling for 19 times earnings, but with growth only expected to average 14.5% annually over the next five years, Copart isn't exactly the cheapest stock on the Street. Plus, as last week's earnings report demonstrated, cash generation has slowed of late. Based on the most recent free cash flow (FCF) numbers, Copart is selling for more than 23 times FCF. That's not exactly a bargain in my book, especially considering the company lacks any dividend to help make up the difference.

But there were a couple of bits of information in last week's reports that did set me to thinking: According to Copart, one reason the company's sales weren't quite up to snuff last quarter was that some sales got pushed out into 2011, causing inventories to jump. While ordinarily a bad thing, this rise in inventories of cars waiting to be turned into scrap might not be so bad now that we're seeing rising prices for scrap.

The Wall Street Journal story noted that scrap steel prices are on the rise, recently jumping a good 4%. That's probably bad news for steelmakers like Nucor (NYSE: NUE) and Steel Dynamics (NYSE: STLD), which use scrap steel as a raw material to make new steel. But it seems to me that it should be a very good thing for a company that possesses a large inventory of junked cars, ready for the scrapping.

A company like (say it with me, folks): Copart.

Time to chime in
How long will it take for Copart to begin mining the rusty goldmine it's sitting on? Will scrap prices rise high enough to justify Copart's valuation? You tell me. That's what Motley Fool CAPS is all about, so click the link, and tell us what you think

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