5 Superball Stocks

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 180,000 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:

Companies

 

How Far From 52-Week High?

Recent Price

CAPS Rating 
(out of 5)

Westport Innovations (Nasdaq: WPRT  ) (53%) $22.56 *****
Heckmann Corporation (NYSE: HEK  ) (55%) $3.19 ****
WPX Energy (NYSE: WPX  ) (40%) $14.10 ***
Kodiak Oil & Gas (NYSE: KOG  ) (32%) $7.36 ***
EXCO Resources (NYSE: XCO  ) (65%) $6.90 ***

Companies are selected by screening on finviz.com for abrupt 10%-or-greater price drops last week. 52-week high and recent price data provided by finviz.com. CAPS ratings from Motley Fool CAPS.

Five super falls and one superball
Last week was a bloodbath on Wall Street -- no two ways about it. Few investors escaped unscathed as the Dow gave up the last remnants of its 2012 gains, more than 5,100 individual equities lost value, and hundreds of firms -- including all five named above -- were decimated, losing 10% or more of their value. So what went wrong?

The better question for most of us is: What went right? And the answer is that oil prices dropped. Depending on your frame of reference (Brent or WTI), the price of a barrel of crude has fallen anywhere from 21% to 25% since the highs reached earlier this year. That's great news for you and me as we stand at the gas pump, watching our wallets slowly get emptier as our tanks get fuller. However, for companies like EXCO, Kodiak, and WPX, which make their money from sucking oil out of the ground, and Heckmann, which supports oil drillers with water delivery and wastewater disposal, it's not good news at all.

In the long term, of course, this trend will surely reverse itself, as all trends do. In the nearer term, however, Foolish investors are broadly putting oil stocks on the shelf and looking for firms with better prospects for a quick turnaround. Curiously, this week they seem to be gravitating toward natural-gas-engine inventor Westport Innovations, a stock you'd expect to be hurt by oil prices becoming more competitive. But is there actually a bull case to be made here?

The bull case for Westport Innovations
CAPS member subsurfacemapper thinks so: "For the next several years there will be truck fleets going toward natural gas....some because it is economical, some because they want to advertise they are green…. Regardless, I think there will be good business for Westport for a number of years."

After all, as shthpns8 points out, the topsy-turvy nature of the oil market just illustrates how "energy is the world's biggest concern on a macroeconomic level."

And according to investor ifni, "Even if natural gas prices do increase, domestically it will still remain cheaper and more abundant than, and geopolitically preferable to, gasoline/diesel for the foreseeable future."

Even if you buy all these arguments, though, there's still one nagging little detail about Westport to consider: The company's not making a profit. It never has (at least not on a full-year basis), and maybe it never will, and for now the company continues to burn through its cash.

But even here, there's a glimmer of hope. In the final quarter of 2011 -- for the first time in about four years -- Westport finally produced positive cash from operations. It was only $1.8 million, and that cash was quickly eaten up by the more than $8 million Westport spent on capital investments. But the news provided at least some evidence that this company can eventually produce the cash it needs to keep growing on its own, independent of new share issuances.

Foolish takeaway
For the time being, Westport remains an extremely speculative investment. I still believe risk-averse investors are safer sticking to companies that do business in more traditional hydrocarbons, such as the three large-cap companies featured in our recent report: "3 Stocks for $100 Oil." That said, growth investors and thrill-seekers may not be completely off-base in buying Westport. The company's starting to show potential, and if you want to get into Westport while it's still on the ground floor, then buying after its stock price has been chopped in half looks like a good time to do it.

Fool contributor Rich Smith does not own shares of (or short) any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 334 out of more than 180,000 members. The Fool has a disclosure policy.

The Motley Fool owns shares of Westport Innovations and Heckmann. Motley Fool newsletter services have recommended buying shares of Westport Innovations. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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