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-plus 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)

3D Systems (NYSE: DDD  ) (22%) $35.07 ****
Cliffs Natural Resources (NYSE: CLF  ) (47%) $40.93 ****
Alpha Natural Resources (NYSE: ANR  ) (75%) $7.21 ***
AK Steel (NYSE: AKS  ) (48%) $5.25 **
Green Mountain Coffee Roasters (Nasdaq: GMCR  ) (76%) $26.76 **

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
In mostly flat trading, the Dow and the S&P 500 both ended last week down only slightly -- but not all stocks were so lucky. In fact, more than 3,600 separate stocks lost money before the week was out. Nearly 200 stocks did even worse, getting decimated and suffering 10% (or bigger) declines in stock price -- and these unlucky few included all five of the companies named above. So what went wrong?

Beginning at the bottom, Green Mountain shareholders (who apparently missed Starbucks' announcement back in March, that it would soon sell a new single-serve coffee maker) were shocked to learn that Starbucks did exactly what it promised six months ago, and began selling the Verismo single-serve machine. The cost of their failure to pay attention: About 14% of Green Mountain's market cap.

In other news-that-isn't-really news, investors in companies tied to the steel and metallurgical coal markets -- who've been warned already (and more than once) that all is not well in the industry, were shocked to learn that things really are as bad as they've been told. Last week, JPMorgan downgraded shares of Cliffs Natural, AK Steel told investors it expects to book a loss in Q3, and -- while in an effort to cut costs -- Alpha Natural had to cut 9% of its workforce. In short, it's hard times all around.

Investors still hold out hopes that four-starred CAPS stock Cliffs will bounce back. After all, with the stock down by nearly half already, and selling for barely four times trailing earnings, it's hard to imagine it falling much more. Other investors, however, are already moving on, and considering whether shares of the other four-star stock on today's list might offer more potential for profit. Let's see if they're right, as we examine...

The bull case for 3D Systems
One thing you can say for 3D Systems: Alone among the stocks taking 10% hits last week, this one at least appears to have no bad news behind its slide. No stock downgrades. No debt downgrades. No bad news of any sort that I can see.

To the contrary, if you ask many investors, everything's going pretty much gangbusters for 3D, which CAPS member SweetZ64 calls "a leader in a new innovation with tons of potential."

All-Star investor cchigga believes that "within the next ten years," the idea of using small "printers" to manufacture actual, concrete physical objects for you in your home "will be [as] ubiquitous as the printer that is currently on your computer desk." And Fellow All-Star Hozer02 calls "3-D printing ... revolutionary for businesses and corporations from large to small biz."

Remanufacturing the future
And it is. Indeed, in a recent Fool report (downloadable for free right here) we called the invention of three-dimensional-printing technology nothing less than a "new industrial revolution." The ability to manufacture physical objects on-site, immediately, and sans shipping costs, promises to upset the traditional manufacturing supply chain -- and disrupt a lot of corporate business models in the process.

But, if there's any downside to the growing popularity of the concept -- and any reason at all for 3D's share price to fall -- it's the very fact that 3D's popularity has resulted in a rather extraordinary valuation on the stock. At current prices, 3D shares cost more than 60 times trailing earnings, and about 49 times annual free cash flow.

Foolish takeaway
Key to understanding why 3D Systems shares fell 11% last week is remembering that the stock had more than doubled in price over the preceding 51 weeks. Also key: You must understand that if 3D is to be worth even its new-and-improved, slightly lower share price, the company must grow a whole lot faster than the 14% projected growth rate Wall Street currently gives it.

If 3D can do that, this stock's "super fall" could turn in true superball returns. But, if it can't, it won't.

As for the prospects of last week's other superballs... we don't have specific reports on all of them, but we do have a premium research report recently prepared on Green Mountain Coffee Roasters. With Green Mountain as cheap as it's ever been, many investors are wondering whether this is the end of the former market darling, or the perfect entry point for an enormous rebound. You can find our recommendation for how to play the company in our new premium research report. In it you'll find everything you need to know about Green Mountain, including whether it's a buy at today's prices. Click here for instant access.  

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

The Motley Fool owns shares of Starbucks. Motley Fool newsletter services have recommended buying shares of Starbucks, Green Mountain Coffee Roasters, and 3D Systems. Motley Fool newsletter services have recommended creating a bear put spread position in Green Mountain Coffee Roasters. Motley Fool newsletter services have recommended writing covered calls on Starbucks.

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 September 24, 2012, at 11:00 AM, careersincloud wrote:

    Out of each stock listed and for a 400% gain from current market price within six-36 months, my first choice would be ANR. Nothing wrong with that company and cold winter ahead and we do not go green for years to come.

    Next 400% gain is AKS.

    None of the rest will see even 100% gains.

    Just my opinion, not a broker, just an investor and trader of 30 years and not here to get anyone to buy, sell or hold anything.

    Good luck to everyone no matter what stocks you are in long or short.

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