4 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  ) (31%) $34.60 *****
Baidu.com (Nasdaq: BIDU  ) (25%) $115.72 ***
Quicksilver Resources (NYSE: KWK  ) (63%) $3.62 ***
Best Buy (NYSE: BBY  ) (38%) $17.31 *

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.

Four super falls -- one superball
The S&P 500 only slipped about half a percent last week. Not a big loss, but it sure did turn a lot of stocks into losers. In all, more than 4,100 separate equities exited the week poorer than they went into it. Many were literally decimated, losing 10% or more of their value in just five short days -- all four of the names listed above included. So what went wrong?

In some cases, the answer isn't at all clear. For example, natural gas prices rose last week as traders kept a watchful eye on the course of Tropical Storm Isaac. You'd think that would be good news for a company like Quicksilver Resources, which produces gas and should benefit from its rising value. Instead, the stock sank all week long.

In other cases, the answer is painfully obvious. For example, lately Best Buy's founder has been offering to take the company private at a tidy premium, delivering a nice, easy profit to recent investors. Instead of taking him up on the offer, though, Best Buy doubled down on its turnaround plan, hiring a new CEO -- as fellow Fool Rick Munarriz put it, "with what is likely a cushy pay package including a sparkling golden parachute." So... so much for that plan.

Likewise, we can pinpoint the reason for Baidu's 14% slump in share price with reasonable accuracy (even if we don't necessarily agree it's justified). Reports out of China last week suggested that "the Chinese Google" (market cap: $40 billion) is starting to lose market share to upstart Qihoo 360 (Nasdaq: QIHU  ) (market cap: $2.8 billion). If true, this would truly be a seismic event, on the order of Google itself getting dethroned by "Ask Jeeves." Like I said -- it doesn't make a lot of sense.

The bull case for Westport Innovations
Speaking of things that don't make sense, it turns out that the top-ranked stock on this week's list -- five-star-rated natural gas engine inventor Westport Innovations -- was also a big loser last week. And yet, while the tropical storm news sounds like a short-term negative (for a company like Westport, which wants low nat-gas prices to boost demand for use of nat gas as an automotive fuel), longer-term, storms generally don't last forever. Plus, one long-term investor in particular, George Soros, has been buying Westport stock rather heavily.

Nor is Soros the only investor to think Westport has a bright future. CAPS member p366 notes that Westport "has superior tech for nat gas vehicles," and believes that "increased availability of fueling stations will drive consumers and truckers to switch to NG."

rdub76, too, argues that "natural gas is cheap, abundant, domestic and clean. As the fueling stations start popping up and the govt pushes clean energy WPRT will be positioned with the technology needed to make the motors run."

Ah, but the real question, as always, isn't what nat gas will do for America's motors... but what Westport can do for your portfolio. And this question, unfortunately, remains very much up for debate.

Unprofitable and burning cash, $67 million last year, Westport doesn't look like a very profitable investment today. Analysts, on average, believe Westport is still more than a year away from earning its first full-year profit. And whether you think the stock is a buy probably depends largely on whether you believe the analysts who say that by 2016, Westport will be churning out profits at the rate of nearly $2 a share per year.

Foolish takeaway
Will it get there? Only time will tell, but two factors argue in Westport's favor. First, with $67 million in cash burn but $307 million in the bank, Westport appears to have the cash it needs to make it not just to profitability (in 2014), but to carry it all the way up to that $2-per-share profits mark (in 2016). Whatever else you think about Westport, at least liquidity should pose no problems. And, if Westport does make it to $2 annual profits -- and keeps growing quickly from there -- the resulting 17-times-earnings P/E ratio (based on today's share price) just might be enough to justify the investment.

That said, more cautious investors may prefer a stock that's already profitable, and already growing fast. Baidu, for example. And as it so happens, we've got a new premium research report out on Baidu that might interest you. Here -- take a look.

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. 263 out of more than 180,000 members. The Fool has a disclosure policy.

The Motley Fool owns shares of Baidu.com and Westport Innovations. Motley Fool newsletter services have recommended buying shares of Baidu.com and Westport Innovations. 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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  • Report this Comment On August 28, 2012, at 7:32 PM, muletrain1 wrote:

    as a westport share holder what is your take on these truck engines that burn natural gas. the truckers tell me that their trucks run hot and that they will shut down. should i continue holding these shares?

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