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 170,000 members of Motley Fool CAPS, we hope to find an opportunity or two for you:
How Far From 52-Week High?
(out of 5)
|Thompson Creek Metals (NYSE: TC )
|JDS Uniphase (Nasdaq: JDSU )
|Amylin Pharmaceuticals (Nasdaq: AMLN )
|Century Aluminum (Nasdaq: CENX )
|SanDisk (Nasdaq: SNDK )
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.
This week's list of sudden underperformers spans a surprising breadth of industries, from high tech to biotech, to the decidedly low-tech vocations of aluminum smelting and molybdenum mining. But which of these cheap choices is best positioned to bounce back over the days and weeks ahead?
SanDisk is probably our most obvious option. The computer memory maker reported fabulous earnings last week, blowing Wall Street's consensus projections right out of the water, yet the stock ended down for the week. Fellow Fool Anders Bylund recently argued that Apple's (Nasdaq: AAPL ) impetus toward wider adoption of SSD-based memory in tablets and laptops will do wonders for SanDisk, and I agree.
In contrast, CAPS All-Star dragonLZ casts a vote for Century Aluminum, calling the stock "definitely one of my long term plays." Makes sense. Over in China, they're forecasting global aluminum production to rise 12% this year, while demand for the product leaps 20%. Sounds like a perfect pitch for price appreciation.
CAPS member glennwhiteside thinks the sell-off at Amylin was an "overreaction" to the FDA's decision requiring more testing of the firm's Bydureon diabetes drug. More testing doesn't equal outright rejection, and this dog of a stock isn't out of the race yet. Meanwhile, JDS hasn't even told us its news yet (earnings come out Nov. 4), and CAPS member rockynicky expects to see "good growth and earnings" when it does.
Of course, individual investor comments notwithstanding, the broader CAPS community is still fence-sitting on these four stocks. The one they've chosen for us to look at today -- by assigning it a superior five-star rating -- is Thompson Creek Metals. Let's find out why.
The bull case for Thompson Creek Metals
CAPS All-Star ValueDragonStyle offers us a quick intro: "Thompson Creek Metals mines, mills, processes, and markets molybdenum products in Canada and the United States."
CAPS member blindsquirrel2 tells us "Thompson Creek is one of the largest miners of Molybdenum, a refractory metallic element used principally as an alloying agent in steel, cast iron, and superalloys."
It is also, as All-Star investor rknapton points out, "a cash rich company, trading at a very attractive valuation, and still has plenty of room for growth due to both an expansion of operations along with the underlying commodity may very well rise in price."
All together now: "How attractive is the valuation?" Well, at the most basic level, Thompson's 9.7 price-to-earnings ratio suggests it's very cheap indeed. Long-term growth estimates in this niche sector of a cyclical industry are hard to come by, but analysts are guessing Thompson will more than double its profits this year, then add 35% earnings growth in 2011. If those trends continue for any length of time, they could make this sub-10 P/E stock look very attractive indeed.
It's also worth pointing out that unlike so many mining companies, and in particular contrast to unprofitable rival molybdenum miner General Moly (NYSE: GMO ) , Thompson's profits have generally been of high caliber, backed up by strong free cash flow. Over the past five years, the company has averaged $106 million in annual free cash flow, which places the company's enterprise value in relation to long-term free cash flow at a similarly attractive level of just under 10.
Time to chime in
To me, all of this adds up to a very attractive valuation proposition. Yes, long-term growth is an unknown, but in the short term at least, Thompson Creek appears to be on a strong growth course. Meanwhile, the company's history of generating free cash flow, the high cash levels this history has allowed it to amass, and its negligible levels of debt tell me the company is in fine financial fiddle to reward investors from today's depressed prices.
But enough about what I think. What's your opinion about Thompson Creek? Tell us on Motley Fool CAPS.