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 170,000 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  )

(39%)

$30.83

*****

Atlas Pipeline Partners (NYSE: APL  )

(13%)

$33.92

****

Ligand Pharmaceuticals (Nasdaq: LGND  )

(12%)

$17.56

***

Protalix BioTherapeutics (NYSE: PLX  )

(37%)

$4.87

**

Direxion Daily Small Cap Bear 3X  (NYSE: TZA  )

(79%)

$13.64

*

Companies are selected by screening on finviz.com for abrupt 5% 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
Marching to the beat of Ben Bernanke singing "QE3" last week, the Dow gained 2.2%, hitting its highest high since December 2007. In a market like that one, you wouldn't expect to find many losers, but in fact, some 1,500 separate stocks lost money last week -- including all five named above. So what went wrong?

The most obvious victims of an advancing stock market are the bears. Accordingly, you'd expect a stock that aims to profit at triple the rate of any sell-off in small stocks, like the Direxion fund does, to take a big hit when the market moves the "wrong" way. That explains the sizable loss in this week's worst-rated CAPS pick. But, not all sell-offs are so easy to explain.

For example, Protalix and Ligand are a pair of unprofitable and barely profitable, respectively, small-cap biotechs. Thus, they're the very kind of stocks you'd expect to benefit from a "risk-on" investing environment, in which the Fed tells investors to abandon all hope of ever earning significant interest on their savings, and buy stocks instead. Regardless, both stocks sold off last week on absolutely no news of note. No FDA refusals, no clinical trial results, no upgrades or downgrades -- literally, nothing.

Strange as all that sounds, the sell-offs at Westport and Atlas Pipeline may have even less logic to them. Over in the Mideast, countries inconveniently located on top of "our" oil are going to heck in a hand basket. America's continued dependence on foreign oil looks as unwise as it ever has. Now, you'd think that would be good news for companies doing business in domestic natural gas production -- instead companies like Atlas, which transports the stuff, and Westport, which is developing the technology that will help us use nat-gas as an automotive fuel. Instead, both stocks sold off last week. Why?

Two ways to play the natural gas revolution
Many investors think five-starred CAPS stock Westport Innovations has a bright future in an economy that's looking for alternatives to oil. CAPS member jnovation, for example, is certain that "nat gas should play a bigger role in transportation and wprt is in the middle of this in engine technology."

Similarly, CAPS member KurtEng points out that "oil production in the US has been decreasing since the 70s and I don't see it turning around. Natural gas just makes sense. Atlas seems like a strong stock..."

But here's the problem: Bright as these companies' prospects may be, their actual accomplishments don't really measure up. Westport -- unprofitable and burning cash -- isn't expected to turn a profit before 2014, at the earliest. Meanwhile, the stock itself sells for nearly 16 times what it hopes to earn more than four years from now, in 2016. When you consider that its partner in nat-gas-engine building -- profitable, FCF-positive Cummins -- can be bought for just 10 times what it's earning today, that doesn't sound like much of a bargain.

As for Atlas, the company's GAAP-profitable, which is a plus. But Atlas is carrying more than $710 million in debt, has almost no cash in the bank, and is burning through $185 million a year in negative free cash flow. Again -- hardly encouraging.

Foolish takeaway
No news inspired the sell-offs at Westport and Atlas last week. Then again, with numbers this bad, maybe no extra bad news is needed to justify selling them. With nat-gas prices still in the dumps, and nat-gas-related stocks not doing much better, investors may be best advised to steer clear of the sector, and invest in oil stocks instead.

Want a few ideas to start with? Read our free report, and we'll tell you all about three stocks to look at in a world of $100 Oil.

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

The Motley Fool owns shares of Westport Innovations. Motley Fool newsletter services have recommended buying shares of 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.


Read/Post Comments (4) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 17, 2012, at 7:11 PM, neamakri wrote:

    The DOW gained 2% last week.

    I was ecstatic until I realized it was an instant 2% inflation.

    If the price of everything goes up 2%, guess what? Nobody wins except the tax colllector.

  • Report this Comment On September 19, 2012, at 6:44 PM, daisydad wrote:

    So what is the one superball?....

  • Report this Comment On September 20, 2012, at 10:08 AM, 619bell wrote:

    I'm nervous about nov and wprt. Tell me something positive about them.

  • Report this Comment On September 20, 2012, at 10:53 AM, djkumquat wrote:

    and the superball is...?

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