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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:


How Far From 52-Week High?

Recent Price

CAPS Rating (out of 5)

Skyworks Solutions (NASDAQ: SWKS  )




RF Micro Devices (UNKNOWN: RFMD.DL  )




Alcatel-Lucent (UNKNOWN: ALU.DL  )




DryShips (NASDAQ: DRYS  )








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

Five super falls -- one superball
After making a short, huffing run toward a new record high last week, the Dow Jones Industrial Average collapsed in exhaustion -- but still managed to hang on to the 14,000 level by the skin of its teeth. When all was said and done, the index even scored a small, fraction-of-a-percentage-point gain for the week -- but that's small consolation for some folks.

Although the overall index held up, across the length and breadth of the stock market, more than 3,900 stocks ended the week lower than they began it -- including all five named above. So what went wrong?

It wasn't always clear. Rare-earths miner Molycorp continued digging down toward rock bottom last week. No particular news of note explained the stock's nearly 10% decline, although an SEC filing from George Soros, which confirmed that the hedge fund guru has dumped his stake in the company, probably didn't help.

A second play on commodities -- dry bulk shipper DryShips -- traded down nearly point for point with Molycorp last week, losing nearly 10% of its market cap as well. And once again, there was no news to explain the stock's fall.

At Alcatel-Lucent, shareholders were treated to an 8.5% slide in share price last week. In contrast to our other decliners, though, Alcatel actually had good news to report: Ben Verwaayen, who's presided over a 68% decline in Alcatel's market cap since taking office Sept. 15, 2008, has resigned. Effective April 1, he'll be replaced by former Vodafone (NASDAQ: VOD  ) CEO Michel Combes. On the plus side, now Combes has a chance to grow Alcatel's share price much more sharply, and off of an even smaller base.

Finally, two of the stocks on today's list -- Skyworks Solutions and RF Micro -- got crushed Thursday in response to news that Qualcomm (NASDAQ: QCOM  ) is introducing a chip that functions as both a frequency and power amplifier for smartphones. Investors see Qualcomm's offering as threatening incumbent chipmakers in the amplification space. Yet of the two Qualcomm rivals, Skyworks began bouncing back right away Friday, while RF Micro slipped even farther into the red. This seems to suggest that investors believe Skyworks is better positioned to survive an onslaught from Qualcomm, than RF Micro is. Are they right?

The bull case for Skyworks Solutions
Many Fools think so. For example, CAPS member line70day points to "growth in China & India" underlying the company's prospects and praises Skyworks' "good cash flow-no debt" attributes.

HopefulRichKid1 insists that "their technology will continue to be greatly utilized."

Meanwhile, narekR  notes that "only few companies are really good in analog and RF semiconductor device design" -- Skyworks being one of them. naterkR thinks the company "will even grow because of increasing number of medical and telecommunication electronics."

As for me -- remember how a few days ago I mentioned that I thought the stock was "not quite cheap enough to buy"? Yeah, well that was before Thursday's sell-off. Today, after last week's 11% price-drop, Skyworks does, in fact, finally look cheap enough to buy. Here's why.

Despite sporting a 20 P/E ratio, Skyworks' strong free cash flow and even stronger balance sheet combine to give this stock an enterprise value-to-free cash flow valuation that's much, much cheaper than the P/E makes it look. Its EV/FCF ratio of 15.8 is, in fact, right in line with the stock's 15.6% projected long-term growth rate, and this tells me that as of today, Skyworks has finally become fairly valued.

In short, while I'm tempted to wait for an even bigger discount to fair value before buying, the truth is that a quality company like Skyworks may never get there. Investors simply may never make the mistake of selling this stock down to a level where its bargain price becomes too obvious.

So my advice: If you were waiting for a buying opportunity on Skyworks, it has finally arrived. This stock is destined to bounce back from last week's slump. It's only a matter of time.

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