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?
|Total (NYSE: TOT )||-21%||$50.15||*****|
|DryShips (Nasdaq: DRYS )||-25%||$5.20||***|
|Dendreon (Nasdaq: DNDN )||-37%||$36.27||**|
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
There's no two ways about it. If you owned any of the five stocks named above last week, you're significantly poorer for it today. Beginning at the bottom, the week's best news perversely comes from Provenge, the new Dendreon cancer treatment. There was no news to explain the stock's weakness last week. I suspect this is mere profit-taking in the aftermath of the previous week's good news and stock price run-up. No cause for alarm here.
Not so with Goldman and JP, the two bankers on this week's list. Here we've got SEC investigators sniffing around insider trading irregularities on the one hand, and renewed credit worries in European banking on the other. True, the Europeans stepped in with a $113 billion Irish bailout over the weekend, but that still leaves Portugal and Spain to worry about. And call me a pessimist, but I'm not convinced that Greece is out of the woods yet, either. In short, there's plenty of reason to worry about banks these days.
Speaking of Greece, what's up with DryShips? It hardly seems that investors need a reason to hate DryShips anymore. The stock's been basically treading water for the past two years, as dry bulk shipping rates have tumbled. As for last week's sell-off, though, you've probably got to ascribe that to the company's doubling down on its drillship investment. While drillships worked out well for DryShips last quarter, no sooner did the company report a free cash flow-positive three months, than it up and laid down another $100 million in options on new ships. Risky, risky.
And last but most, we come to French oil magnate Total. It's the top-ranked stock on this week's list, and in contrast to everyone else named above, the single stock Fools favor to outperform the market going forward. Let's find out why.
The bull case for Total
Like DryShips, Total looks about to embark on a capital spending spree. According to the Wall Street Journal, Total is discussing taking ExxonMobil's (NYSE: XOM ) place in a project to build a $6 billion petrochemical plant in Qatar.
But unlike DryShips, Total has the wherewithal to place big bets like this. As CAPS member shanelofgren just pointed out: "They are on pace to have their best cash flow year ever (topping even '07 and '08) as they continued investing right on through the recession. They tied with XOM for the most production growth among oil majors in 1H10 with 6.3%."
What's more, according to CAPS member VirginiaPacific, "Total appears to be one of the cheapest oil majors, trading at 0.7x sales, 8.6x earnings, 1.9x tangible book with a generous 5% yield. ... Profit only fell 24% from 2008 to 2009, compared with 54% at Exxon, 36% at Petrobras (NYSE: PBR ) and 66% at Shell. That indicates their growth plan is working (they are particularly strong in Africa and other underexplored emerging markets) and their reserves are cheaper to extract."
Summing up, CAPS member Burgermyster321 says Total "looks like a good value pick, nice chart and nice dividend."
Good, better, best
I agree. Selling for eight times earnings, with a 3% projected growth rate and a dividend yield of 5.3%, Total does indeed look attractively priced today.
I do not think it's the best bet in Big Oil, however. That honor probably belongs to Exxon, which costs about 50% more but is growing faster; or even better, to ConocoPhillips (NYSE: COP ) or Chevron (NYSE: CVX ) , which are both almost as cheap as Total -- but growing faster than Exxon.
As a result, while I admit the possibility that Total will bounce back from last week's sell-off, I still think that long term investors will be better served sticking with oil companies closer to home. To my Foolish eye, any of "the usual suspects" offer even better value propositions than Total.
But that's just my opinion -- I could be wrong. If you see something preferable in Total, here's your chance to tell us why. Click over to Motley Fool CAPS now, and tell us why.