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)

Marvell Technology (Nasdaq: MRVL  )

-55%

$7.57

****

Clearwire (Nasdaq: CLWR  )

-38%

$1.85

**

Gold Resource (NYSEMKT: GORO  )

-37%

$17.58

*

Bankrate.com (NYSE: RATE  )

-58%

$10.97

*

Companies are selected by screening on finviz.com for abrupt 10% or greater price drops last week. 52-week high and Recent price at 52-week-high data provided by finviz.com. CAPS ratings from Motley Fool CAPS.

Four super falls -- one superball
Friday's freefall puts an exclamation point on a particularly ugly week for Wall Street. Across the markets, some 3,100 separate stocks exited the week poorer than they went into it. Among these, nearly 180 stocks were literally decimated -- down 10% or more -- including all of the companies named up above. So what went wrong?

Beginning at the bottom, Bankrate got wallopped after it warned that Q3 earnings (due out Nov. 1 ) will miss estimates by about half, coming in as low as $0.11 per share. The 22% loss Tuesday, followed by further declines each day since, have driven Bankrate's stock down more than 25% below its June 2011 IPO price.

A similar early release of production estimates for 2012 from Gold Resource sent that stock, too, down on Thursday. Management now says it's highly unlikely the company will hit even the low end of its previous guidance for gold production. Total losses: about 13% on the week.

Clearwire fell even further, ending the week down 20% on worries that Sprint Nextel (NYSE: S  ) may acquire a 50.4% stake in the company -- and that's it. If Sprint is content to take a controlling interest in Clearwire, rather than buy the company outright, this limits the likelihood that a big premium will be bid for the remaining shares.

But what about the top stock on this week's list? What about four-starred Marvell? The semiconductor maker suffered a steep fall Friday after cutting guidance -- and cutting its CFO loose. Nonetheless, investors remain optimistic about the stock. Investors like ...

The bull case for Marvell Semiconductor
Hedge fund honcho and Greenlight Capital boss David Einhorn is on record saying Marvell is marvelously cheap. And Einhorn's support is enough for CAPS member TrojanFan, who admits, "I'm just following Einhorn on this one."

But not just Einhorn. Fellow CAPS member dj2000a also likes Marvell, calling it a "solid company with competitive technology." Meanwhile, player azinsd admits that Marvell is "hurting from [its] relationship with RIM." But he says the company is also "forming ventures with other telecoms, moving into SSD, and strong financials, ownership, and dividend are all pointing in right direction."

Indeed, Marvell itself pointed out that while demand for its chips in personal computers and their hard disk drives is down this quarter, solid state drives (the SSDs that azinsd is talking about), networking, and even mobile devices are all performing "in line with prior expectations."

Foolish takeaway
I'm sticking with my own prior expectations on the stock -- namely, that it's deeply undervalued, and almost certain to outperform the rest of the stock market if given enough time.

Priced at less than 10 times trailing earnings, Marvell is a bargain if it comes anywhere near the 14% long-term growth rate that analysts expect it to produce. It's even cheaper once you net out the $2.1 billion in cash that currently makes up half of Marvell's market cap. Back that out, and the ex-cash P/E on this one drops to less than 5 (and the enterprise value-to-free cash flow ratio drops to an astonishingly cheap 3.25).

Long story short: Marvell bears may be shorting this one, but I'd rather go long.

Fool contributor Rich Smith owns no shares of, nor is he short, any company named above. (At least not yet). You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 289 out of more than 180,000 members. 

The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Bankrate. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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 22, 2012, at 10:19 AM, taishiba wrote:

    You left out wrongly VRNG which dropped a lot last week on panicky day traders.

    Buy VRNG on it winning against Google soon. VRNG may be worth more than all these other companies in this article combined soon!

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