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)

Sturm, Ruger (NYSE: RGR  )

14%

$51.44

****

Amarin (NASDAQ: AMRN  )

39%

$9.69

****

Dynavax Technologies (NASDAQ: DVAX  )

53%

$2.49

***

Sarepta Therapeutics (NASDAQ: SRPT  )

44%

$25.32

**

Companies are selected by screening on finviz.com for abrupt 10% 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 0.1% through Friday, you might think last week was a pretty good one for investors. Shareholders of the more than 3,300 stocks that suffered declines last week, however, might beg to differ. And shareholders of the four stocks named above -- each literally decimated by a 10% (or greater) fall from grace -- certainly weren't pleased with the results. So what went wrong?

Beginning at the bottom, muscular dystrophy drugmaker Sarepta tumbled 14% last week, when the release of a Week 62 update on trials of Eteplirsen showed the "miracle drug" to fall somewhat short of miraculous healing powers. Still, the drug's remarkable success in past trials has helped power this stock to a near fivefold gain this year. Not too shabby.

Moving on to Dynavax, the hepatitis-B vaccine manufacturer continues to lag in the wake of last month's disappointing recommendation from the FDA. Fellow Fool Sean Williams recently argued that this is far from "curtains" for the drugmaker, however, and the stock could bounce back yet if it can produce better safety data.

And continuing the trend of biotech wreckage, Amarin shares got absolutely crushed last week, when investors read plans to hire a sales force, and pay for it with debt, means cash-burning Amarin isn't getting bought out anytime soon.

The bull case for Sturm, Ruger
Fortunately, one stock on today's list has nothing to do with biotech. Also fortunately, it's a stock that many investors on Motley Fool CAPS feel very positive about: Sturm, Ruger.

Ace CAPS investor yooperking predicts that "gun sales will be coming up roses in the next 4 years."

TheJesterRace points out that, in fact, there's already "lots of gun buying due to Obama's election" and agrees that the rally is "not done yet."

And if that's the case, CAPS All-Star gweech thinks Ruger is a great way to play the rally:

Great products and a great following. Lots of IP. Great balance sheet. No debt. ... Incredible margins. Their products are very well respected among the shooting community. They pioneered the concealed carry pocket pistol movement.

Ruger backers could be right. After all, even after running up 50% over the past year, Ruger shares hardly look expensive today at a share price only 16.5 times earnings.

Long-term growth rates for the company are hard to come by, but if Ruger is able to keep up with the rest of the gun industry (pegged for nearly 12% annualized earnings growth over the next five years) -- or, even better, match the 22% long-term growth rate expected out of rival Smith & Wesson (NASDAQ: SWHC  ) -- then a mid-teens P/E ratio looks quite reasonable for the stock. Cheap, even.

The company boasts a clean balance sheet, with $105 million in cash and not a lick of debt. It has respectable, if not quite stellar, free cash flow. And Ruger even pays its shareholders a nice dividend yield -- 3%. (Smith & Wesson doesn't.)

Foolish takeaway
Put it all together, and I think last week's sell-off was unjustified -- an overreaction to disappointment with the earnings release at rival Smith & Wesson. At 16.5 times earnings, Ruger is a high-quality gunmaker selling for a very reasonable price. Once the bounceback begins, making money on this one should be like shooting fish in a barrel.

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