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)

Staples (Nasdaq: SPLS  ) (32%) $11.34 ****
Smith & Wesson (Nasdaq: SWHC  ) (20%) $8.23 ***
Alpha Natural Resources (NYSE: ANR  ) (82%) $6.45 ***
Molycorp (NYSE: MCP  ) (83%) $9.84 **
InterOil (NYSE: IOC  ) (15%) $78.02 *

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.

5 super falls -- one superball
After first stumbling out of the gate, the S&P 500 quickly righted itself Tuesday, and proceeded to march on to notch a near-1% gain by week's end. Not all investors were so lucky, however. Above, you see five stocks that were quite literally decimated, falling 10% or more last week. So what went wrong?

Beginning at the bottom: InterOil slipped on an earnings miss Monday, reporting stronger revenues but a loss on earnings -- an even bigger loss than Wall Street had expected. The shares quickly shed 4% of their value, and despite one brief bounce back, proceeded to keep falling all week long.

Moving on to Molycorp, the world's most famous rare-earths-miner-who-doesn't-live-in-China saw its stock sink 11% in a day after announcing a dilutive stock-and-debt offering... then getting downgraded on Wall Street in response. And in other mining news, another coal stock crumbled, as Alpha Natural proved unable to withstand increasing worries over the falling value of metallurgical coal.

Smith & Wesson got hit hard when KeyBanc Capital Markets downgraded the stock Wednesday – although, as I recently argued in a column on AOL DailyFinance, this wasn't due to any missteps the company made. (It's the analysts' logic that misfired on that one.)

And yet, amid all the carnage -- and low ratings on CAPS -- one stock stands out as both a deep-value bargain and a superior four-star stock pick on CAPS. Let's find out why, as we examine...

The bull case for Staples
By now you've probably heard all about Staples' "double miss" (on earnings and on revenue) last week. You know the stock got downgraded (to sell) by Citigroup in response. But did you know that a stock getting cheaper isn't necessarily a bad thing?

At least, that's the way CAPS All-Star 4Foolz is looking at the news. Considering Staples' miss less bad than it's been billed, 4Foolz says the stock's now "too cheap to ignore after a 15% haircut."

Its earnings miss notwithstanding, wbinv2100 reminds us that Staples is currently the "second largest online retailer, without the Amazon valuation. Unique model of box stores, online retailing, and sales force."

And CAPS member mscottbone agrees that Staples is "a rare sound company with a nice dividend being undervalued in today's market."

I agree too. Selling for just 8.5 times earnings, Staples looks bargain-priced relative to the better than 9% rate of growth Wall Street expects it to produce over the next five years. It may be even cheaper than that. If you value the company on its copious free cash flow (about 30% greater than reported net income), the stock trades for a price-to-free cash flow ratio of only 6.5.

Foolish takeaway
Any way I crunch the numbers at Staples, the company comes away looking like a bargain. Wall Street analysts, disappointed by the company's numbers last week, may take some time to realize this... but Staples pays its investors a 3.3% dividend while we wait for the inevitable bounce. Staples is a stock that will reward you for your patience.

 (But beware: Not all retailers are created equal. Learn to avoid the pitfalls in our free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." To gain instant access to this free report, simply click here.)

Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 276 out of more than 180,000 members. The Fool has a disclosure policy. The Motley Fool owns shares of Staples. Motley Fool newsletter services have recommended buying shares of Staples.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.


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