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)

II-VI (NASDAQ: IIVI  )

28%

$17.60

*****

Antares Pharma (NASDAQ: ATRS  )

31%

$3.85

***

VIVUS (NASDAQ: VVUS  )

60%

$12.39

**

Arena Pharmaceuticals (NASDAQ: ARNA  )

35%

$8.71

**

Molycorp (NYSE: MCP  )

78%

$8.00

**

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
As January draws to a close, 2013 is already off to a strong start for stock investors. Last week, the S&P 500 tacked on an extra 1.1% and recrossed the 1,500 mark for the first time since October of '07 ... but not everybody's cheering.

Especially dour are shareholders of the nearly 2,200 stocks that actually lost money last week. Stocks like the five named up above. But what is it, exactly, that's been holding these companies back?

It's sometimes hard to tell. Take bottom-of-the-lister Molycorp. Its shares crashed big-time Wednesday, when management revealed that funding its capital investment program would require it to issue hundreds of millions of dollars worth of new debt and equity, diluting its existing shareholders in the process. But on Friday, when the company actually announced it was going ahead with the program -- the shares popped! Not enough to get Moly back to where it started, granted, but still. It was a pretty strange situation.

Other times, it's downright near impossible to figure out what investors are thinking. For example, Arena shares tumbled early last week on worries that its Belviq diet drug won't be approved by the European Medicines Agency's Committee for Medicinal Products for Human Use (CHMP). Well and good. But why did VIVUS -- maker of competing diet drug Qsymia, which also failed to win CHMP approval -- also fall last week? You'd think hard times for a competitor would be good news for VIVUS -- but apparently, you'd be wrong.

And of course, Antares Pharma shares shed 5% of their value last week for no reason whatsoever. No bad news. No good news. No news at all.

The bull case for II-VI
Which brings us to the one stock on today's list whose decline and fall last week actually makes perfect sense -- and a stock that may nonetheless be finally approaching buyability: laser components maker II-VI (pronounced "two-six"). Last week, a 1% slip in revenues turned into an 8% decline in profits. Combined with a weak forecast for fiscal Q3 earnings, that sparked a 10% sell-off in the shares. Nonetheless, CAPS members are optimistic that II-VI can turn this around 180 degrees, and bounce back.

All-Star CAPS player and all-around good Fool TMFOrangeblood points out that a single miss doesn't change the fact that "II-VI has high barriers to entry" on its side, plus "a sound, proven, long-term business model; and the possibility for strong growth in its target markets."

Fellow All-Star awallejr likes the company's "nice clean balance sheet," which boasts $38 million more cash than debt. 

And Hoos1213 calls the company an "innovative business that has a lot of promise to it."

I agree -- especially if you remember that "promise" implies an ability to deliver at some point in the future.

Right now, you see, II-VI still looks a little pricey based on its 21 P/E ratio. The good news is that the company is actually cheaper than it looks, generating about $73 million a year in free cash flow ($20 million more than its GAAP earnings suggest). The better news is that with long-term growth predicted to average 13% a year, II-VI is fast approaching a valuation at which it might be worth buying.

Foolish takeaway
For now, the company's $1.1 billion market cap is still high enough that at 15 times annual free cash flow, II-VI is only fairly priced. Give investors a little time to get discouraged over the stock's poor performance relative to the S&P 500, though -- give them some time to drive the stock price down even further -- and II-VI could soon be selling at a real discount to its true worth.

And that, dear Fools, will be the moment II-VI turns into a real superball of a stock. For now, watch and wait.

The Motley Fool's chief investment officer has selected his No. 1 stock for this year. Find out which stock it is in our brand-new free report: "The Motley Fool's Top Stock for 2013." I invite you to take a copy, free for a limited time. Just click here to access the report and find out the name of this under-the-radar company.


Read/Post Comments (4) | Recommend This Article (16)

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 29, 2013, at 6:21 AM, goldozone wrote:

    You forgot to add $KERX and $CERP imho :)

  • Report this Comment On January 29, 2013, at 6:45 AM, SamFreedom wrote:

    Yet again, shamefully, an author does not understand ARNA and treats it just like any other stock. The author seems unaware that ARNAs CEO wad voted Best CEO by Motley Fool community... it wasnt by accident.

    Although simply due to profiteering, I believe VVUS, despite its problems will bounce around 12-13.50.

  • Report this Comment On January 29, 2013, at 7:00 AM, RSRdriver wrote:

    An Areniac mentioning shame!

    You in particular! You seem to forget "your" CEO conveniently forgetting about the cancer in rats issue with Belviq at the first ADCOM!

    Everyone knows that the Areniac Army was again ORGANIZED into a voting machine for CEO of the year. You people should watch what you ORGANIZE- most of it could be construed as highly illegal!I wonder how many multiple votes that produced? Then, the only thing you can do when invested in a losing and worthless proposition is promote it with stupid things like the CEO of the year fiasco or bashing the competition!

    You people are approaching a new level for pathetic spinning.

    That reminds me. How did you like my answers to your nonsense on that 3 Horrendous Stocks article?

  • Report this Comment On January 29, 2013, at 5:58 PM, SamFreedom wrote:

    RSRDRIVER,

    Sorry to say, you're no match for me. You seem to be mentally ill, actually. I mean, first, you smear ARNA with takes of rats and cancer which means your complaint should be with the FDA since they approved Belviq.

    Btw, a fair warning to rats to not take Belviq when it his the market. Its for people only.

    I believe you, RSRDRIVER belong in the looney bin with those who constantly claim splenda is insecticide or saccharin produced tumors in rats. Its been decades now that rats have been licking sacharrin out of styrofoam coffee cups at the dump and dumpsters and they're still thriving.

    Oh well. Try another angle, would you? For your sake.

    Oh, and claiming the Motley Fool CEO vote was rigged? Man, that's a hoot. Ate you really that desperate that you're resorting to conspiracy theories now?

    Who's the leader, Bigfoot?

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