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 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:

Company

How Far From 52-Week High?

Recent Price

CAPS Rating (out of 5)

Enerplus (NYSE: ERF  )

50%

$12.84

*****

Alpha Natural Resources (NYSE: ANR  )

71%

$8.00

***

Arch Coal (NYSE: ACI  )

57%

$7.36

***

Windstream Corporation (Nasdaq: WIN  )

27%

$8.50

***

Molycorp (NYSE: MCP  )

82%

$7.50

**

Companies are selected by screening on finviz.com for abrupt 5% or greater price drops last week. Recent price and 52-week-high data provided by finviz.com. CAPS ratings from Motley Fool CAPS.

Four super falls -- one superball
Last week was a great one for Barack Obama -- but a poor one for stocks. As campaign staffers cheered in Washington and Chicago, investors wailed on Wall Street and watched the S&P 500 slide 2.5%. Across the length and breadth of the markets, some 4,700 separate stocks closed the weak lower than they went into it -- and that was the good news.

The bad news was that more than 340 companies were literally decimated, losing 10% (or more) of their market cap over five days of frenzied trading. So what went wrong?

In the case of Molycorp, the answer's obvious. After reporting better-than-expected earnings Thursday, the company dropped a bombshell Friday morning, when its 10-Q filing mentioned that the SEC was investigating Molycorp. Specifically, regulators are questioning the "accuracy of the company's public disclosures." Considering Molycorp failed to mention this in its earnings report -- or indeed, to mention it at all in the three months it's apparently been ongoing -- the SEC may have a point.

Next up, Windstream. The telecommunications provider's 11.8% dividend yield has always been popular with investors on fixed incomes. But last week, Windstream's earnings miss gave some shareholders pause. The company's paying out three times its actual profits in dividends already. If profits don't start growing again, and soon, that's a situation that will prove unsustainable.

Two other companies suffering last week, Arch Coal and Alpha Natural Resources, can lay their woes on the White House doorstep. Investors hoping for a reprieve from federal anti-coal antipathy were disappointed Tuesday. President Obama's victory speech, and the coal stock sell-off, began just hours apart. But what about the third "energy stock" on today's list? What about Enerplus?

The bull case for Enerplus
The Canadian oil trust disappointed Wall Street last week when it reported a $64 million loss for Q3 and cut production guidance for the rest of the year. Regardless, many investors have high hopes for a bounceback at five-starred Enerplus. CAPS member DonGutch says the company's "good in natural gas, and completely undervalued."

Cressida argues that "Natural Gas is [an inevitable] auto energy." And even if that turns out not to be the case, aljanssen points out that the company is at least partially "oily with a growing trend to liquids ... they can export to the USA/China with ease."

Valuation matters
Yet the company still has its issues. A few months ago, when reviewing Enerplus in this space, I pointed out that the company was in a real cash crunch to help support the "more than $1.1 billion in debt on its books." Now, Enerplus has made some improvement in this respect. But it's still unprofitable. Still burning through cash at the rate of $579 million a year. And yes, the debt is still there, too -- hardly changed at all from last quarter.

With the company on the hook for $213 million in annual dividend payments, it's hard to see how Enerplus will be able to either pay down debt or maintain its dividend in the face of negative free cash flow -- much less do both at once. And that's a real shame.

Because until Enerplus figures out a way to make its books balance better, I just don't see how the stock can get the big bounce investors are looking for.

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