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)
|InvenSense (NYSE: INVN )
|Penn West Petroleum (NYSE: PWE )
|Chimera Investment (NYSE: CIM )
|Cell Therapeutics (Nasdaq: CTIC )
|Cheniere Energy (NYSE: LNG )
Companies are selected by screening on finviz.com for abrupt 5% or greater price drops last week. Fifty-two-week high and recent price data provided by finviz.com. CAPS ratings from Motley Fool CAPS.
Five super falls -- one superball
After starting off strong, stock markets slumped toward the weekend, with the S&P 500 closing half-a-percent lower by Friday. Investors in nearly 3,200 separate stocks -- both good companies and bad -- lost money, and we're not talking just a little money, either. Up above you see the names of five stocks that were decimated. Companies, whose owners ended the week at least 10% poorer than they began it. So what went wrong?
It's not always clear. Take Cheniere Energy, for example. The stock appears to be suffering from a push by U.S. natural gas proponents to limit the issuance of licenses to export liquefied natural gas -- hoping to keep the fuel at home, and cheap for U.S. consumers. This sounds like bad news... except for the fact that Cheniere was granted an export license before the slowdown took effect. Indeed, the fewer permits that are granted from here on out, the better things look for Cheniere!
Or consider Cell Therapeutics. On Wednesday, the company announced it is preparing to launch sales of its non-Hodgkin's lymphoma drug Pixuvri in Europe, while simultaneously cutting cash-burn by roughly one-third. Good news? Apparently not because for some reason this sparked a 13% sell-off.
In contrast, the declines at Chimera and Penn West have more logic to them. Chimera just cut its dividend for the second quarter in a row, which makes the stock less attractive to income investors. And word has it that a major hedge fund has been unloading its shares of Penn West. It may not make sense to sell the stock after the smart money has already exited -- indeed, Penn West's four-star CAPS rating suggests the stock may be getting attractive -- but you can at least understand why Citadel's exit might make some investors nervous.
Last but not least, we come to InvenSense, a stock recently profiled by my Foolish colleagues John Reeves and David Meier as one of 11 Potential Big Winners to Buy Right Now. InvenSense had no bad news to report last week, and it's five-starred on Motley Fool CAPS, suggesting John and David may be right about this. Let's take a look, and see what we shall see, as we examine...
The bull case for InvenSense
As John and David explain: "InvenSense designs micro-electro-mechanical systems (MEMS) for motion control in products such as electronic games and smartphones. iSuppli expects 1 billion devices will use MEMS technology by 2014." CAPS member lilgiant believes that InvenSense's "motion technology ... will soon be in every mobile, gaming or handheld device."
CAPS All-Star nrlbuild thinks the company has a "Competitive advantage with a huge market opportunity."
And Ace CAPS investor boxxer55 agrees, pointing out that "Revenue and earnings growth projections are tremendous even before the recent new product announcements," and with the stock "selling at just more than 1/2 its 52 week high, this is a great time to pick up shares with real $$.
And yet, you may wonder whether even InvenSense's projected 25% earnings growth is fast enough to justify the stock's 31 trailing P/E ratio. The answer is "yes."
You see, if you look past InvenSense's GAAP numbers, and focus on what really matters -- cash in the bank, and cash coming in the front door -- what you find is that InvenSense is actually a whole lot cheaper than it looks. The company boasts more than $150 million in cash against negligible debt. And once you back out this cash hoard, the enterprise value on this stock is barely 17 times annual free cash flow (which at $42 million, exceeds reported income by a significant margin).
An EV/FCF of 17 is not too much to pay for a fast grower like InvenSense. To the contrary, a growth rate this fast, on a stock price this low, tells me that InvenSense is actually pretty darn cheap -- cheap enough that I'm prepared to stake my reputation on the stock's ability to outperform the market. For this reason, I'm making a positive CAPScall on InvenSense in my CAPS account today. Will it work out?
Follow along, and find out.
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