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)

Silvercorp Metals (NYSE: SVM  )

43%

$4.75

****

Questcor Pharma (NASDAQ: QCOR  )

55%

$26.11

**

Mellanox Technologies (NASDAQ: MLNX  )

56%

$52.31

**

Direxion Financial Bear 3X (NYSEMKT: FAZ  )

63%

$13.40

*

Direxion Small Cap Bear 3X (NYSEMKT: TZA  )

55%

$12.13

*

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.

Five super falls -- one superball
The gates opened on 2013 this week, and the S&P 500 was quickly off to the races. Over three trading days, the index of America's 500 biggest publicly traded companies booked an impressive 2.8% -- nearly a-point a day. Nonetheless, 836 separate stocks somehow found a way to lose money last week, exiting Friday trading lower than they began it on Monday. Who were they, and why did they fall?

Beginning at the bottom, we have a pair of "stocks" -- ETFs, actually -- that seemed tailor-made to disappoint in the face of a strongly rising market. Both function as outsized bets on certain kinds of underperforming stocks -- small caps and financials, respectively. Both suffered outsized losses when small caps and financials soared in response to a last-minute federal sidestepping of the fiscal cliff. Not to worry, though. After all, this year's repeat of the debt-ceiling debate is just around the corner ...

As for the other companies populating today's list, we have a couple of CAPS losers, and one that investors still think can outperform. Of the losers, Israel's Mellanox got mauled after warning that Q4 revenues could come in as much as 20% lower than previously expected. Meanwhile, Questcor added to the disappointment of the recent Michigan Blue Cross Blue Shield decision, when it announced Wednesday that it will spend $50.7 million to acquire Canadian contract manufacturer BioVectra, That's about half the cash Questcor currently has in the bank. I'm not too worried about that -- Questcor is a virtual cash machine and can easily afford the acquisition. But apparently I'm in the minority view on that.

The bull case for Silvercorp Metals
Which brings us, of course, to Silvercorp -- which was on the sharp end of a 5% haircut last week, as lawsuits  questioning its accounting for silver production continue to roll in -- but which CAPS members consider a four-star outperformer regardless. Why?

CAPS member waiting4him calls Silvercorp a play on an expected "world economy cash crash," plain and simple. All-Star investor Wifeb123 points out that it's selling for a "cheap valuation and low PE."

On the other hand, my Foolish colleague TMFCop -- also an All-Star CAPS player, by the way -- has criticized Silvercorp's management for giving "specious arguments for production shortfall at the Ying mine, laying the blame primarily on workers being 'distracted' by the 'short and distort' campaign by short sellers,' and questions whether it's really true that a miner can't mine because investors are critique the company..."

And that's really what the argument boils down to on this stock. On one hand, Wifeb123 has a point about the stock's apparent cheapness. If you believe the analysts, Silvercorp shares are selling for an apparent forward P/E ratio of only 8.0! On the other hand, though, even an 8 P/E may not be a bargain if all that Silvercorp manages to accomplish over the next five years is grow earnings at the 5% rate Wall Street projects for it. What's more, if you value the stock on its trailing income and 17.9 trailing P/E, that 5% growth rate looks even less attractive.

Factor in management whose forthrightness has now been called into question, and the fact that lawyers smell blood in the water and have begun to circle the company, and I see just too much risk here to justify a "buy." While there's always a possibility Silvercorp will "go superball" and bounce right back from its recent troubles, I see just as much risk that this stock continues to deflate further.

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Read/Post Comments (2) | Recommend This Article (3)

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 January 07, 2013, at 10:42 AM, ich1ban wrote:

    SVM has been in the hot seat as of late. Yes, it has fallen quite fast and rapidly in share price but I would not let these lawsuits vex you.

    You have to call into question the person making the claims that SVM is $1.2 Billion accounting fraud. That was the first claim he (Alfred Little) made. That is a little bit like screaming fire in a theatre, after realizing his libelous claim, he toned his rhetoric down. His sole purpose was to create hysteria.

    SVM has cash flow and has paid one of the highest dividends among Silver producing companies for the last 4 year, when they first started paying a dividend.

    You can not fake cash flow and dividends. You either receive a check or you don't after the ex-div date.

    SVM has no debt and will grow revenues over fiscal 2014 (current year 2013) substantially higher.

    -Production is expected to increase 64.4% from 5.9 million OZs to 9.7 million OZs.

    -Operating cash flow is forecasted to increase $160 Million to $248 Million.

    If you are still in the air about the alleged lawsuits. You have to ask yourself this:

    -Why have all the lawsuits come out exactly at SVM's new 52 week low? It is a little too convenient for power-playing Hedge Funds that are massively short with shares short exploding before the lawsuits started coming out, going from 6 days to cover, to over 10 days as of 12/14/2012. It will be very interesting to see the new days to cover and total shares short as of 12/30/2012 when the information becomes available.

    -Also, you have to question the motives of this Alfred Little, aka Jon Carnes, ex-manager of EOS Funds. If you do a quick search on Google of EOS Funds, you can take a look at their past investments in China on the "News" Tab and find out that every single investment they made through their debt and equity positions went absolutely belly up since 2007. The month EOS stopped its service, June 2011, happened to be the month the shorts were quadrupled in SVM, which is also when the Sino-Forest incident happened. I am not making an post hoc ergo propter hoc, but rather just an observation.

    -The major advantage you have on your side to quell any vexation you have about SVM is the massive Institutional ownership (relative for the mining industry) at over 30% of total shares owned, in addition to the solid dividend it has paid out the last 4 years(solid for miners; especially silver miners.)

    -Once investors stop throwing the baby out with the bath water when it comes to companies operating in China, they will come to find the massive value in the Canadian Miner, SVM.

  • Report this Comment On January 10, 2013, at 5:29 PM, hemmjj wrote:

    Does switching auditors mean anything? Switching in the middle of this large law suit is interesting but potentially could mean nothing.

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