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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 a while, 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?
CAPS Rating (out of 5)
|Coca-Cola Hellenic Bottling (NYSE: CCH )||(48%)||$14.30||****|
|NetApp (Nasdaq: NTAP )||(49%)||$28.61||***|
|Dell (Nasdaq: DELL )||(32%)||$12.46||**|
|ExactTarget (NYSE: ET )||(31%)||$20.60||**|
Companies are selected by screening on finviz.com for abrupt 10% or greater price drops last week. Fifty-two-week high and recent price data provided by finviz.com. CAPS ratings from Motley Fool CAPS.
Four super falls -- one superball
With the Dow gaining 0.7%, and the broader S&P 500 adding 1.8% before breaking for the holiday, you might have thought that all was well, since the week ended well. And it did, unless you were a shareholder in one of the 2,200 stocks that bucked the "trend" and declined in value, or the 170-odd stocks that got quite literally decimated, losing 10% of their market cap (or more). Stocks like the four named above. But what was it, exactly, that went wrong?
Beginning at the bottom, a cameo appearance by the CEO on Jim Cramer's Mad Money wasn't enough to save email marketer ExactTarget from a painful fall. Two weeks after a first-quarter earnings report showing strong revenue growth, but widening losses, failed to dent the stock price, ExactTarget suddenly and inexplicably turned down -- and lost 12.5% of its market cap in a week.
As unexplained as ExactTarget's misfortunes were, the reason for Dell's drop was equally and oppositely obvious. Sales slipped 4%, but earnings got absolutely crushed -- down 33% year over year. Guidance for future growth was similarly weak and missed Wall Street expectations badly. Result: Dell ended the week 15.5% cheaper than it began it.
Likewise with NetApp, bad "guidance" seems to be the culprit for the stock's near-14% drop. While fiscal Q4 earnings came in strong, NetApp warned that the current quarter isn't looking particularly profitable. In the best case, management expects to miss the Street's hoped-for $0.59 in profits by at least $0.20. Cue sell-off.
And finally, Coca-Cola Hellenic Bottling. Here, the clue would appear to lie in the name: "Hellenic." As in, "Greek." Everyone and his brother seems convinced that Greece will exit the Euro any day now, or default on its debt, and maybe both. At the very least, this can be expected to sour investors on the prospects of companies doing business in Greece, and the local Coca-Cola (NYSE: KO ) bottler is a pretty prime suspect in that regard. But why, if that's true, do CAPS investors rate Coca-Cola Hellenic Bottling the strongest stock on this week's list? We're about to find out, as we delve into...
The bull case for Coca-Cola Hellenic Bottling
According to CAPS investor LSchwab1, the answer is pretty simple: "The world drinks [Coke] in good times and bad."
Plus, as FiscalFriend points out, although headquartered in Athens, Coca-Cola Hellenic doesn't do business just in Greece. Instead, its markets spread out across 28 different countries, from Greece to Ireland, Austria to Russia, and across many of the countries in between: "Like a good, risk-minimizing investor, CCH spreads its sales across established (well-off), developing (increasingly competitive) and emerging (now up-and-coming) markets." Therefore, even "in a worst case scenario-if Greece continues to perform poorly, CCH will still profit."
CAPS member ContraryDude therefore concludes that, "this is one Greek company that is going to outperform the market."
Granted, at first glance that may sound overoptimistic. At 16.6 times earnings, Coca-Cola Hellenic appears to sell at a premium to its 10% projected long-term growth rate. But look at little closer, and I think you can see why ContraryDude could be right about this stock:
- Valued on forward earnings, for example, Coca-Cola Hellenic looks attractive at 11.2 times forward earnings (versus "the market's" 13.7 forward P/E).
- Coca-Cola Hellenic also generates strong free cash flow -- about twice what it reports as "net income" under GAAP. As a result, when valued on free cash, the stock sells for just 5.3 times FCF -- a tidy discount to future growth rates.
- And of course, for investors who agree with LSchwab1 that the world is always going to drink Coke, but who balk at paying the 20-times-earnings price tag on Coca-Cola proper, Coke's Greek bottler offers a nice way to buy into this strong franchise at a discount.
Coca-Cola is one of the great American brands, to be sure. (And if that's what you're looking for, here's a free report on three more we like). But relative to its elder sibling, Coca-Cola Hellenic has a cheaper trailing P/E, a cheaper forward P/E, and a cheaper price-to-free cash flow ratio.
Three great reasons to have a [Coca-Cola Hellenic], and a smile.