When stocks fall fast and far, they sometimes set themselves up for remarkable rebounds. The following equities suffered dramatic drops over the past week. With help from the 170,000 members of Motley Fool CAPS, we'll see whether any of them have the potential to bounce back:
|
Companies
|
How far from 52-week high?
|
Recent Price
|
CAPS Rating
(out of 5)
|
| OmniVision Technologies (Nasdaq: OVTI ) |
(10%) |
$33.18 |
**** |
| CME Group (NYSE: CME ) |
(13%) |
$283.15 |
**** |
| Skyworks Solutions (Nasdaq: SWKS ) |
(33%) |
$25.50 |
**** |
| Frontline (NYSE: FRO ) |
(50%) |
$17.74 |
**** |
| American International Group (NYSE: AIG ) |
(45%) |
$28.88 |
** |
Companies are selected by screening on finviz.com for abrupt 10% 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. So what went wrong?
Beginning at the bottom, AIG's share price may have dropped a bit, but I still hesitate to call this "bad news." Fact is, the company succeeded in floating 200 million government shares at its re-IPO. And while the $29-a-share sales-price wasn't nearly as much as AIG shares fetched just a few months ago, it was considerably more than the $25-price many pundits had been predicting going into the IPO.
Similarly not-so-bad news is afflicting Frontline. Reporting earnings last week, the company admitted to lower operating profits -- but not so low as to miss earnings targets. In fact, the company beat on earnings.
At Skyworks, we learned the company is about to get $259 million poorer, but one acquisition richer, as it purchases Advanced Analogic (Nasdaq: AATI ) . The acquisition carries a hefty premium, but according to Skyworks, it will improve the company's position in the market for smartphones, tablets, and set-top-boxes.
CME's stock seems to be having an adverse reaction to the Nymex-operator's plan to increase margin requirements for oil futures contracts. On the other hand, CME looks to be expanding its business in Ukraine, signing a memorandum of understanding to lay the groundwork for trading grain and other futures contracts in that country.
What about OmniVision?
Indeed, what about OmniVision? Like the other stocks on today's list, it took a big tumble last week. Also like them, the news doesn't seem to justify the sell-off -- and CAPS investors continue to think the stock's a fine value, giving OmniVision a near-perfect four-star rating. Why?
Turns out, the answer is remarkably simple. CAPS member rjfraiman cheers "Apple, Apple, Apple!!!!" ealva54 praises the company's "unique ties to Apple (Nasdaq: AAPL ) ." And rcjansen elaborates that OmniVision "provides top notch cameras for Apple," arguing that "Ipad and Iphone sales will keep this stock going through most of 2011."
And they're not alone in their enthusiasm. Discussing OmniVision's fourth-quarter earnings report last week, fellow Fool Anders Bylund pointed out that the company's stock has soared on investor hopes that it will ride Apple's coattails to success in the months and years ahead. Anders attributes the post-earnings sell-off to investors getting "a little too fired up about this stock," and being disappointed when OmniVision "failed" to beat earnings estimates by as much as it did last time around.
So what?
That's what I say -- because from where I sit, OmniVision did just fine. It delivered better gross margins that it had expected, grew revenues 64%, and produced pro forma earnings far ahead of last year's number. I'm a bit disappointed that management didn't deign to provide investors with a cash flow statement to "ice the cake." Still, my review of what OmniVision did tell us suggests that when we do get a final report, free cash flow is going to look just fine.
Last time we heard from OmniVision, three quarters into the fiscal year, free cash flow was running comfortably ahead of reported net income. And the company's latest balance sheet shows cash levels to be way up from this time last year. Put those two facts together, and I'd say chances look good for OmniVision having generated in excess of $125 million free cash flow last year.
If I'm right, that would give the company an enterprise value-to-free cash flow ratio of about 12 -- plenty cheap for the 15% long-term growth that most analysts expect it to produce. My guess: When we finally get the hard numbers, OmniVision is due for a bounce. Be prepared.
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