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 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

 

How Far From 52-Week High?

Recent Price

CAPS Rating
(out of 5)

Dolby Labs (NYSE: DLB  ) (19%) $56.56 *****
Energizer Holdings (NYSE: ENR  ) (13%) $67.38 *****
Allos Therapeutics (Nasdaq: ALTH  ) (64%) $3.20 ****
Paccar (Nasdaq: PCAR  ) (14%) $50.60 ***
CVS Caremark (NYSE: CVS  ) (13%) $32.67 ****

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 are no two ways about it. If you owned any of the five stocks named above last week, you're significantly poorer for it today. So what went wrong?

Beginning at the bottom of the chart, CVS Caremark missed the mark with earnings Thursday. It turns out, the contract CVS just signed with Aetna (NYSE: AET  ) isn't as profitable as investors had hoped, and that's dragging down earnings at CVS's pharmacy benefits business. (Still, at 13 times earnings and with a 1.4% dividend yield, I think CVS is plenty profitable for the price.)

Next up is Paccar, whose problem wasn't performance, but predictions. True to form, the truck manufacturer enjoyed strong profit growth as American truckers rebuild their fleets. The problem was, the company also warned of higher commodities costs that are going to eat into profit later this year. (That's yet another reason why I prefer Navistar (NYSE: NAV  ) as a play on the renaissance in American trucking.)

At Allos Therapeutics … well, honestly, I don't know what's the deal with Allos. The stock's down a good 8% on the week on absolutely no news. (Then again, if you're investing in profitless biotechs like this one, you probably expect some volatility.)

On the other hand, investors in Energizer Holdings were almost certainly unprepared for the 9% hit they took last week. I mean, what's more steady-Eddie than the batteries biz? The problem here is that Energizer is more than just the namesake batteries. The company also sells Schick razors, and as fellow Fool Travis Hoium noted last week, that business suffered some serious razor burn last quarter.

Bad news (and in Allos' case, no news) notwithstanding, most Fools seem to be standing by their stocks this week. And for the most part, these are ratings I agree with. In addition to the attractive valuation at CVS, I also think Energizer looks entirely buyable at less than 12 times earnings, but it's not the best buy on this week's list. That honor goes to Dolby.

Dolby Laboratories
Dolby, as you've probably guessed by now, had a bit of a rough week last week. Despite reporting market-beating earnings for the fiscal first quarter, the company warned that the rest of this year's revenue would be weaker than expected. The news sparked an 8% sell-off in the stock Friday, 00but not all Fools are so easily frightened.

CAPS member Bud62 argued last week that "the demand for qualitiy sound is not going away." Nor is Dolby. As fellow CAPS member gweech pointed out, "these guys are everywhere and in everything. As the PC market dies, they will continue to romp the tablet, mobile device, and TV arena. They have a great cash positions, incredible margins, and a totally geeked out culture." (I think that was a compliment.)

Granted, guidance underwhelmed us last week. Granted also, this matched up perfectly with a warning from Goldman Sachs, which remarked last September that the rise of Apple's iPad and similar tablet computers is sparking "cannibalization [of personal computer and DVD sales] ... even faster than we originally expected." Goldman saw this as an existential threat to Dolby's business model, and told investors to pile out of the stock before it plunges to $50.

Time to chime in
Today, Dolby's sitting within spitting distance of Goldman's mark. Call me an optimist, call me a Fool, but I'm starting to get interested.

Why? Consider: If Dolby falls to $50, this would price the stock at just 20 times earnings, when less profitable competitors DTS and SRS Labs are selling for multiples to earnings twice or three times as large. Relative to the competition, Dolby would be a pretty obvious bargain at $50, and I would not be at all surprised to see it bounce off that price point.

Of course, that's just my opinion, and there's also the niggling detail that there's no guarantee Dolby will fall to Goldman's predicted "price target." I mean, $56 could be as low as Dolby goes, and anyone waiting around for the perfect price will only miss the boat on this one.

Which way do you vote? Do you buy Dolby before the bounce, or wait for it to fall further? Click over to Motley Fool CAPS now, and cast your vote.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 707 out of more than 170,000 members. The Fool has a disclosure policy.

Energizer Holdings is a Motley Fool Inside Value recommendation. Dolby, Energizer, and PACCAR are Motley Fool Stock Advisor picks.

Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.


Read/Post Comments (5) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 08, 2011, at 10:03 AM, woo131 wrote:

    You use the CAPS scores as if they were real. In fact almost all the raters gave their ratings at least 2 to 4 years ago. What value would that have in the present? Similarly, most of the Wall Street ratings were given 1 to 2 years ago. The newest rating was in December of last year, 2 months ago. Things in the real world change faster than that.

  • Report this Comment On February 09, 2011, at 6:05 PM, harispicks wrote:

    Regardless dolby is a winner and I dont see it going anywhere but up in the next 1-2 years.

  • Report this Comment On February 10, 2011, at 12:31 AM, crca99 wrote:

    Ray Dolby retires. I don't care how well they prepare, or put in family, it's still potentially a big deal and worth watching and waiting for a while.

  • Report this Comment On February 11, 2011, at 12:33 PM, tradesmarter11 wrote:

    I like DLB , but can someone please research why the top directors and sales executives sold thousands of their shares of DLB the week of Feb. 02/ to feb 09 2011???? I'd like to buy it , but from all the insider selling going on, how can i believe in DLB? It doesnt appear management has any want to own their own stock. IF DLB was really a good buy, wouldnt they be snapping it up? Just read the insider filings to see the truth. Am I wrong? I'd like to know if my analisys is sound? Management doesnt want to own this stock, and why should we?

  • Report this Comment On February 16, 2011, at 12:51 PM, corrysj wrote:

    DLB is one of Tom Gardner's favorites. I've been long the stock for over 2 years and I added to my position today.

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