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.
It's been awhile, but thanks to last week's sell-off, we once again have a chance to stand beneath Mr. Market's silverware drawer in hopes of snagging a bargain. Let's meet today's contenders:
How Far From 52-Week High?
(out of 5)
|Horsehead Holding (Nasdaq: ZINC )||(45%)||$9.01||*****|
|Molycorp (NYSE: MCP )||(68%)||$23.98||**|
|LDK Solar (NYSE: LDK )||(71%)||$4.19||**|
|Sears Holdings (Nasdaq: SHLD )||(68%)||$31.78||*|
Companies are selected by screening on finviz.com for abrupt 5% or greater price drops over the past week. The 52-week high and recent price data are provided by finviz.com. CAPS ratings from Motley Fool CAPS.
Four super falls -- one superball
The Santa Claus rally hit a bit of a speed bump last week, with the Dow Jones Industrial Average shedding about 1% over the course of an abbreviated trading week. Several stocks fared even worse than that, with Molycorp, LDK Solar, and Sears Holdings getting decimated -- losing more than 10% of their value. So what went wrong?
In Molycorp's case, what went wrong was China. Last week, China upped this year's quota for rare-earth exports. Not by a lot -- just 3%. But that was enough to cause an immediate 14% sell-off at Molycorp, which depends on a tight-fisted China to support high prices for its own rare-earth production.
China's doing no favors for LDK Solar, either. Last week, the country's premier name in electronics manufacturing, Foxconn Technology, announced it was entering the market for solar cells. That's the last thing this struggling industry needs -- more production capacity.
And of course, there was Sears. Christmas was not kind to this retailer, which last week reported negative same-store sales for the holiday season, combined with plans to shutter as many as 120 of its Sears and Kmart stores. Investors rushed for the exits, sending Sears shares down 31% for the week.
As you can see from the one- and two-star CAPS ratings being handed out above, Foolish investors aren't particularly enthusiastic about any of these stocks outperforming in the year to come. But what about that funny-named five-star stock sitting up there at the top of the list? What about...
The bull case for Horsehead Holding
Alone among the stocks on this week's list, zinc producer Horsehead Holding had no bad news to report last week. In fact, it's been getting a bit of good news. A few weeks back, U.S. Steel (NYSE: X ) announced it's restarting an automotive steel galvanizing line that had been closed down for a year. Since zinc is used in galvanizing steel, this could potentially spell good news for Horsehead's sales. Meanwhile, Reuters is reporting that zinc buyers are leaning toward using lower priced "prime western" zinc that Horsehead produces, rather than higher priced "special high-grade" and "continuous-galvanizing-grade" zinc, which can cost twice as much. More good news for Horsehead.
And yet, CAPS All-Star KickBackAt40 reminds us that Horsehead is still a company "in an out-of-favor industry, substantially off it's 52-week high."
Result: As cgobin6 points out, the stock is selling for a "low price to tangible book," despite the fact that it has both "sales and eps growing."
At eight times earnings, and with earnings growth projected at 10% per year for the next, the stock looks priced to move if the global economy should turn out better than feared this year. On the other hand, if worse comes to worst and we head back in recession, well, Horsehead has more than $170 million in net cash on its balance sheet -- enough cash to back up more than 40% of the firm's market cap. Between this net cash, and the new free cash flow still flowing in the door, I'd say Horsehead has the resources it needs to weather any storms 2012 throws at it -- and emerge safe on the other side.
Long story short, Horsehead may not be the absolute best stock to outperform the market in 2012 (to find out who we think that is, read our new free report: "The Motley Fool's Top Stock for 2012") But is it an undervalued, value-priced stock -- and one likely to bounce back in the coming year?
Yes, I believe it is.