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)

Vodafone Group (NASDAQ: VOD  )

12%

$25.95

*****

Halcon Resources (NYSE: HK  )

41%

$7.21

***

Alcatel-Lucent (NYSE: ALU  )

42%

$1.54

***

Dendreon (NASDAQ: DNDN  )

61%

$6.07

**

Level 3 Communications (NYSE: LVLT  )

26%

$20.81

**

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
Like a belated, publicly traded groundhog, the Dow Jones Industrial Average briefly peeked above the 14,000 mark last week, before diving back down for cover. Nonetheless, the market held pretty steady, ending with the Dow down a small fraction of 1% for the week. But not all investors were so lucky.

In fact, across the length and breadth of the stock market, some 2,890 separate equities ended the week lower than they began it. So what went wrong?

Beginning at the bottom, Level 3 shares got crushed Tuesday after reporting a big pro forma loss (and an even bigger net loss). On the plus side, Level 3 did report strong free cash flow  in the fiscal fourth quarter, so there's still hope this stock can bounce back if it keeps that up.

Dendreon shares were wiped out by a downgrade to "sell" from Maxim Group -- a downgrade I happen to agree with.

Alcatel, in contrast, tripped itself up, reporting lower revenues two Fridays back, announcing a big net loss, and firing its CEO to boot. That set investors to betting against it, even though one analyst decided to upgrade the stock.

Meanwhile, oil and gas developer Halcon Resources appears to have declined for no good reason at all, losing 7.6% of its market cap in a week when OPEC released estimates predicting a surge in oil demand in 2013.

Does that sound a little strange to you? It does to me. Yet there's one stock on today's list that investors think an even bigger bargain than Halcon -- or anyone else on the list, for that matter. Read on, as Fools discuss ...

The bull case for Vodafone Group
Five-starred on CAPS, European telecom giant Vodafone boasts a $128.8 billion market cap -- and a 5.8% dividend yield. Investors like these numbers for different reasons, with CAPS All-Star jbolley praising the company's "high div commitment," while CAPS member Fish08 likes the idea of owning the "world's second largest wireless carrier, offering regionally diversified high single-digit growth."

CAV23 predicts: "Synergies. Plus investor confidence in dividend and cheap price will drive market value up to where it rightfully should be."

Granted, some investors may be frightened away from Vodafone by the fact that currently, under GAAP accounting, the stock looks unprofitable -- but that may be a mistake. While it's true that Vodafone's income statement currently shows the company with a $2.7 billion trailing loss, Vodafone's cash-flow statement confirms that, in fact, the company generated $11.5 billion in real cash profits over the past year -- and has a long history of generating similarly robust cash profits.

Foolish final thought
The one thing I don't like about Vodafone is that the company's also carrying a big debt load -- nearly $45 billion net of cash on hand. That said, if you're the kind of investor who doesn't mind a bit of debt in your portfolio, then Vodafone -- priced at barely 11 times annual free cash flow, paying a near-6% dividend, and projected to grow profits at 7% annually over the next five years -- looks priced to move.

Vodafone is a player in a crowded telecom space, along with Nokia. The Finnish handset maker has been struggling in a world of Apple and Android smartphone dominance, and it has banked its future on its next generation of Windows smartphones. Motley Fool analyst Charly Travers has created a new premium report that digs into both the opportunities and risks facing Nokia to help investors decide whether the company is a buy or sell. To get started, simply click here now.


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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 February 18, 2013, at 2:49 PM, bestwaytoriches wrote:

    Rick,

    I truly think RAD $1.58 should be added to your list after changing a multi yr spiral down in stock price.

    RAD fits your rebound theme. RAD had a nice pull back last week but the matrix are still working strong for RAD with the Flu season continues and all drug stores will benefit. RAD $1.58 price to sales .05 this is 1/10 the fair value of competitors WAG CVS ESRX

    RAD has now turned the corner and growth and profitability is the norm. Raised margins are now common place at RAD. Most professional money managers predict 2013 RAD $ 1.58 to triple with a fair value of $ 3.20

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