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:
How far from 52-week high?
CAPS Rating (out of 5)
|Exelixis (Nasdaq: EXEL )
|Solazyme (Nasdaq: SZYM )
|Heckmann Corp (NYSE: HEK )
|Roundy's (NYSE: RNDY )
|priceline.com (Nasdaq: PCLN )
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 -- one superball
For six straight days, from two Fridays back through all of last week, the S&P 500 has steadily gained value. Good news? Indubitably, but not for everybody. In fact, some 2,460 companies ended last week lower than they went into it. More than 170 were literally decimated, losing 10% or more of their market cap, and these included all five of the stocks named above. So what went wrong?
Today's list contains a pair each of two-starred (low-rated) stocks and a second pair of four-star (high-rated) equities as well. Before we get to our top-ranked five-starred stock, let's take the runners-up two at a time.
First up, Roundy's and Priceline. Each reported earnings last week, and in each case, investors were less than impressed. Priceline plunged 15% despite "beating earnings" for the quarter, because management warned investors that the current quarter may not be as strong. Roundy's shares got hurt even worse after the grocer both issued weak guidance and missed earnings. Oops.
Now for the four-star stocks. In one fell swoop, Heckmann validated investors' faith in it by both doubling Q2 revenue and beating earnings by a nickel. On the other hand, while revenues were up, they weren't up as much as analysts were expecting them to be, and management compounded Wall Street's worries by saying it was too "difficult" to predict just what it will earn by year-end. (Downgrades ensued.)
Meanwhile, as Heckmann zigged, Solazyme zagged. The biofuels producer beat expectations on revenues but missed on earnings. Solazyme also accelerated its burning of cash. So far this year, the company's more than $45 million in the red on free cash flow -- a number even worse than the GAAP loss.
The bull case for Exelixis
And now, the stock you've been waiting for: five-starred Exelixis. CAPS member pchop123 sees a bright future for this small-cap cancer researcher, and believes it "should make money on its [thyroid] cancer solution." And even if it doesn't make money for itself, CAPS All-Star RXDOC73 believes Exelixis should turn a profit for shareholders, because it is a "potential buy out target."
And maybe that's so (albeit most analysts project Exelixis will lose money this year and lose even more money next year). Betting on a buyout is a risky proposition, too -- made more so by the event that sent Exelixis shares tumbling last week. As fellow All-Star pavlos1971 explained, investors sold off Exelixis on news that it was "diluting shareholders" with a plan to sell 30 million shares, and issue $250 million worth of convertible debt, in an effort to keep itself solvent.
Crystal ball -- validated!
As you may recall, I predicted this very thing when we last looked at Exelixis a few months ago. With a cash burn rate north of $120 million per year, Exelixis was due to run out of money within about 20 months... absent finding a new source of cash. Now, however, if you consider all the overallotment options included in its capital-raise, the company looks set to collect as much as $434 million from combined debt and equity sales.
This postpones Exelixis' money troubles for a while. On the other hand, it also means that Exelixis has no urgent need to find a suitor anytime soon -- so the chances of a buyout happening just decreased markedly. Meanwhile, on the third hand, we're still looking at an unprofitable company here, one whose fate rests on getting lead drug cabozantinib approved and then getting doctors to prescribe it.
Judging from its five-star rating on CAPS, that's OK with most investors, who still think Exelixis will turn a profit... eventually. But what do you think? Are you willing to wait another few years to see how this story plays out? Or do you worry that the next time Exelixis is in the headlines, it won't be because it's just developed a new cancer-curing wonder-drug -- but because it's burned through all its cash again and is back asking investors for more cash?
Click over to Motley Fool CAPS right now, and tell us what you think.
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