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)
|
| JA Solar (Nasdaq: JASO ) |
(28%) |
$7.35 |
***** |
| E*TRADE Financial (Nasdaq: ETFC ) |
(20%) |
$15.89 |
**** |
| U.S. Steel (NYSE: X ) |
(20%) |
$56.76 |
**** |
| USEC Inc (NYSE: USU ) |
(19%) |
$5.28 |
**** |
| Allied Irish Banks (NYSE: AIB ) |
(85%) |
$3.54 |
**** |
Companies are selected by screening on finviz.com for abrupt 10% or greater price drops over the past week. Fifty-two-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. So what went wrong?
Since solar peer Trina (NYSE: TSL ) reported strong earnings growth Tuesday, you might have expected top-ranked JA Solar to have done well last week. Problem was, unlike Trina, JA buys most of its wafers from third parties, and higher costs for this product hurt profit margins at JA -- spooking analysts and sending the stock down 7%. Margin pressure likewise plagued uranium supplier USEC, contributing to a steep decline in both Q4 and full-year 2010 profits. The fact that USEC guided investors toward a 10% sales decline in 2011 didn't help matters, either.
Among companies not reporting earnings last week:
- U.S. Steel seems to be sagging in the wake of Goldman Sachs' too-bullish prediction for "rising steel prices" in the New Year. Peer AK Steel (NYSE: AKS ) has proposed raising prices to offset rising input costs, and U.S. Steel has followed suit -- but as the Wall Street Journal reports, it's not clear steel buyers are willing to pay the higher prices they're asking.
- Allied Irish, essentially nationalized and delisted at home, is now suffering from a wave of investor backlash on the NYSE over its disheartening 1-for-5 share swap.
- And at E*TRADE, a major investor has announced it's selling most of its shares (which promises selling pressure that could push the stock down).
And yet, if you examine the ratings restated up above, investors remain optimistic about all these stocks. Obviously, with JA being the best-rated stock on the list, I'm tempted to make today's column all about them -- especially seeing as just last year, I named JA one of my three favorite solar stocks. But I won't.
Here's why: Although the company made no mention of this in its press release, JA revealed in its after-earnings conference call that it's gone from positive $76 million free cash flow in 2009 to negative $56 million in 2010. As a result, JA no longer belongs to the solar elite, and I no longer think the stock quite so hot as I once did. Instead, I'm going to move down the list one notch this week, and tell you a little bit about ...
The bull case for E*TRADE Financial
What's to like about E*TRADE? For one thing, CAPS member AnchorageAK says it's got the "best trading platform in the market. Current stock price is quite low, knocked down by costs associated with Etrade's disasterous foray into mortgage lending."
"Disastrous foray?" That certainly doesn't sound good. Fortunately, KCSavage tells us that E*TRADE is hard at work "resolving issue with mortgages, and the company should be growing revenues in 2011 and 2012."
Not only that, but ScottieSD believes the company is "on the cusp of turning profitable and can be a buyout target. Trading under book value."
Time to make the e-trade?
And you know what? After fact-checking these assertions, I find it hard to disagree. E*TRADE is making progress with its mortgage loan "issues." At last report, the company had nearly $16 billion in loans on its books, but after reducing gross loans receivable by $298 million in January, E*TRADE seems intent on reducing the size of its exposure to the mortgage market by as much as $1 billion per quarter. Its book value is higher than the company's market cap. And although the company lost $28.5 million last year, analysts predict the company will be back in the black in 2011, sporting a 16 times forward P/E ratio.
Even better, the company's already generating significant "cash profits." Free cash flow over the past 12 months came to nearly $1 billion, giving the company a startlingly cheap price-to-free cash flow ratio of just 3.5. That's cheap -- even if the company comes nowhere near hitting Wall Street's projected 37% annual long-term growth rate.
Time to chime in
Not every-Fool is convinced that E*TRADE is a great investment idea, of course. Why just last year, fellow Fool Ilan Moscovitz made a strong case for why Warren Buffett would probably never touch the stock. As for me, though, I see a lot to like in E*TRADE.
But what do you think? If you've got an opinion on E*TRADE -- pro or con -- we've got a place to state your case. Click over to Motley Fool CAPS now, and sound off.
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