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.

Companies

 

How Far From 52-Week High?

Recent Price

CAPS Rating (out of 5)

Exelixis (Nasdaq: EXEL  )

30%

$4.88

*****

McMoRan Exploration (NYSE: MMR  )

48%

$8.53

****

Kodiak Oil & Gas (NYSE: KOG  )

21%

$8.58

****

SUPERVALU (NYSE: SVU  )

71%

$2.38

***

InterOil (NYSE: IOC  )

44%

$55.66

*

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

Five super falls -- one superball
With the S&P 500 up a modest 0.5% through Friday, you might think last week was a pretty good one for investors. Shareholders of the more than 2,000 stocks that suffered declines last week, however, might beg to differ. So what went wrong?

Supermarket chain SUPERVALU is failing to live up to its name. Last week, a report  that buyout talks with Cerberus Capital have hit a sticking point sent SUPERVALU shares tumbling nearly 20% on worries that a "buyout premium" will not be happening.

Oil companies aren't doing much better. As you may have noticed, three of the names on this week's "superball" list hail from the oil industry, where stagnant crude prices  and worries about the "fiscal cliff" seem to have put a lid on gains in oil stocks. Only one of the stocks -- McMoRan -- had actual bad news to report last week, as it encountered difficulties cleaning out a clogged oilwell. On the other hand, InterOil announced Friday that a test well it was digging in Papua New Guinea struck oil sooner than expected . Yet good news or bad news, all stocks fared poorly, with Kodiak dropping 5.4% and InterOil 7%. (Small change next to McMoRan's 31.5% plunge, but still moving in the wrong direction).

Regardless, investors playing CAPS continue to be optimistic about the prospects for four-starred Kodiak, and now four-starred -- and cheaper! -- McMoRan. One company they like even better than the oil plays, though, is small-molecule cancer researcher Exelixis, laid low despite scoring an FDA approval for its Cometriq thyroid cancer drug. Why?

The bull case for Exelixis
CAPS member oldgliderrider explains:

EXEL is a bio-pharmaceutical firm that specializes in developing various cancer treatments. Recently, almost all of their efforts have been revolving around the development of [Cometriq]. ... When you look at the history of this company, they have shown their ability to make a profit and create a solid pipeline for their drug development.

Fellow CAPS member Jaddyl agrees and says, "[I'm] expecting good long term growth with this stock."

Meanwhile, on a personal note, player FWWright confides: "As someone that had thyroid cancer (20 years ago) I am glad that it was caught early. Many others are not caught early and EXEL has a treatment now for more advanced thyroid cancer that may work for other cancers as well."

Valuation matters
Of course, there's a big difference between rooting for a company's success, or its products, and knowing whether the stock will make you money. So with Cometriq's approval now secure, how can know whether Exelixis, the company, will work out well for you?

Honestly, we can't. And in fact, it's hard even to make an educated guess with a company like Exelixis. It's profitless today, and analysts don't expect Cometriq's success to result in profits for Exelixis "tomorrow," either. In fact, looking as far out as 2016, analysts still don't see much chance that Exelixis will make any money. Instead, four years from now, they expect it will still be losing about $0.54 per share, per year.

Foolish takeaway
Naturally, this doesn't bode well for investors. While Exelixis has made progress in turning down its cash burn rate in recent quarters, at last report, all the cash on the company's balance sheet still wouldn't be enough to carry it to profitability. And that's not even considering the $335 million in debt the company is carrying. The logical conclusion, therefore, is that at some point in the future, this company is going to have to dilute its shareholders again -- perhaps multiple times, before a chance of profitability appears on the horizon.

Long story short, Exelixis may be a company whose products you should support. As far as the stock goes, though, the chances of a bounceback look bleak.

Exelixis isn't the only drug stock that's fallen on hard times. Dendreon's run over the past four years witnessed sub-$5 share prices skyrocket to 10-bagger status before tumbling all the way back down below $5, as its revolutionary prostate cancer vaccine Provenge became a lightning rod of debate. But where does that leave investors -- other than a bit nauseated from the roller-coaster ride? Our own David Williamson answers this question, and many more, inside our brand-new premium research report on Dendreon. Inside, he details every key issue facing the company and outlines just how Dendreon intends to regain its former glory. The report also comes with a full year of analyst updates, so claim your copy of this exclusive report today by clicking here now.


Read/Post Comments (3) | 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 December 02, 2012, at 5:37 PM, tikigod18 wrote:

    Mr. Smith,

    Do you have a clue what these companies do?

    I don't think you have a clue that both are drilling for natural gas, not oil.

    Apparently, you think that MMR has a "clogged oil well" and IOC "struck oil sooner than expected"???

    What the heck????

  • Report this Comment On December 03, 2012, at 11:56 PM, josef104 wrote:

    What is "Superball" and when is it?

  • Report this Comment On December 06, 2012, at 4:23 PM, trreddy5 wrote:

    I have been buying IOC from 88, now down to 51.47.

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