3 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)

NXP Semiconductors (Nasdaq: NXPI  )

-19%

$22.51

*****

MannKind (Nasdaq: MNKD  )

-34%

$2.40

**

Green Dot Corp (NYSE: GDOT  )

-71%

$10.24

**

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
A rotten week, one that sent the Dow down 2.1%, savaged the stock market last week. Investors in some 4,800 separate stocks lost money. Some folks lost quite a lot of money, with more than 220 companies getting literally decimated -- down 10% or more -- including all three of the stocks named up above. So what went wrong?

Beginning at the bottom, prepaid plastic-card pioneer Green Dot took a huge hit on Wal-Mart's (NYSE: WMT  ) announcement that it will be partnering with American Express (NYSE: AXP  ) to distribute a prepaid "Bluebird" card in its stores. Rumors that CVS may be reconsidering its partnership with Green Dot didn't help the stock much, either. But with Green Dot shares now selling for less than eight times earnings (and nearly half their market cap backed up by cash), you have to wonder if the selling here has gotten a bit overdone.

The week wasn't kind to MannKind either, with the stock falling 15%. (And in this case, even our analysts are at a loss for what might have been behind the sell-off.) Meanwhile, NXP Semiconductors lost nearly as much -- 13% -- on a similar lack of news. Unless you count the earnings warning from AMD, there just doesn't seem to be any reason why NXP suffered a TKO -- and herein may lie an opportunity.

The bull case for NXP Semiconductors
Alone among the three headlining losers named up above, you see, NXP sports an above-average rating on CAPS. Actually, the best rating investors can give it -- a full five stars!

Why do Fools like it? Well, CAPS member wealthwiser tells us that "they invented the NFC chip and own many patents on this technology." Fellow CAPS player chalmer thinks the company's "patent chest presents a solid growing gem." And wealthwiser argues that with so many smartphones these days "implementing NFC chips, NXP will see demand for their chips grow. Also just developed a new audio chip for smartphones that drastically improves Audio output and volume..."

Meanwhile, the Fool's own TMFMattyA says the company turned in "solid Q2 2012 results" and predicts that "new NFC products, strength in China and Asia-Pacific markets, and growing adoption across mobile OEMs should keep growth flowing."

How fast could NXP grow? Analysts on average predict that the company will average 34% profits growth over the next five years. And while that may not look like much relative to the company's ultrahigh P/E ratio, what you need to keep in mind when examining NXP is that "GAAP earnings" don't tell the whole tale. Fact is, this company generates gobs more cash than it gets to report as "net income" under GAAP -- a whopping $331 million over the past 12 months.

Valuation matters
Compare this $331 million to NXP's $5.6 billion market cap, and what you find is that the stock actually costs less than 17 times the amount of cash it generates in a year today. And what this means is that, if the company comes anywhere close to achieving the 34% growth rate Wall Street expects of it, NXP is really quite a bargain at today's prices.

Maybe even a big enough bargain to bounce.

Is Wall Street making a mistake when it panics and sells off stocks for no reason, or an overblown reason? If so, it won't be the first time. Find other opportunities in stocks where analysts have blown the call, all laid out in our new free report on three more stocks that Wall Street's too Rich to Notice. Just click here to read it now.

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

The Motley Fool has the following options: short OCT 2012 $55.00 puts on American Express Company, short OCT 2012 $60.00 calls on American Express Company, and long OCT 2012 $65.00 calls on American Express Company. Motley Fool newsletter services recommend American Express Company, MannKind, and NXP Semiconductors. Try any of our Foolish newsletter services free for 30 days.

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


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  • Report this Comment On October 15, 2012, at 2:46 PM, WCoastGuynCA wrote:

    Do you think that Mannkind's drop might be due to the fact that it will be out of cash in two months or the anticipated 40% dilution that is expected in the next secondary?

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