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:

Companies are selected by screening on finviz.com for abrupt 10% or greater price drops over the past week. 52-week high and recent price data provided by finviz.com. CAPS ratings from Motley Fool CAPS.

Five super falls -- one superball
There are no two ways about it. If you owned any of the five stocks named above last week, you're significantly poorer for it today. So what went wrong?

In the case of American Superconductor, it's not the "American" part that's the problem -- it's China. It seems American Superconductor is facing super-human problems getting its Chinese customers to pay for its goods. Result: American Superconductor just announced it is restating at least two quarters of financials and reducing its reported revenue for last fiscal year by 15%.

So the reason for American Superconductor's short circuit is obvious, but what about Alcatel-Lucent? No mystery there, either. Deutsche Bank says this stock's run is done. Removing its buy rating on the stock and downgrading to neutral, Deutsche sent Alcatel's shares into a tailspin.

Where things get tricky is with the other three stocks on today's list: Motricity, Universal Display, and Infinera, all of which crashed last week, none of which seem to have done so for any particular reason. No bad earnings reports. No news whatsoever that seemed to spark the sell-offs.

Of the three, only five-starred Infinera seems to be generating any investor excitement over its sell-off. So today we'll be focusing on that one.

The bull case for Infinera
Fellow Fool Eric Bleeker introduced us to Infinera back in March as a Rising Star recommendation, explaining "the company has created chips that remove components from optical equipment and allow operators to better scale their network bandwidth in a more cost-effective manner." Eric places great faith in Infinera's 100G bandwidth solution, and he's not the only one.

CAPS member fenixhidra, for example, had this to say:

Infinera has a patented technology (photonic integration circuits) that will be difficult for its competitors to replicate. Carriers will need increased speed and data storage and [Infinera] provides wavelength division multiplexers that allow for both speed and data storage. The potential is the 100G network which will make carriers have an easier time providing service, faster and be more efficient.

Admittedly, Infinera's 100G megahit isn't due to hit the market until next year. But as CAPS member jagec3 points out, that's not an existential problem: "The company has alot of cash. no debt."

Infinera's $275 million war chest should easily carry the product through to completion, at which point the company can begin ramping its sales (and profits?) from the product. That's not to say the company is doing badly even now. As fellow Fool Seth Jayson recently noted, Infinera boasts better revenue growth than either Alcatel or Cisco (Nasdaq: CSCO), and is keeping better control of its inventories than Ciena (Nasdaq: CIEN).

Foolish final thought
It's true, of course, that Infinera's still struggling on the bottom line. It hasn't earned a penny's worth of profits since 2008. But Infinera's losses have been trending down since the miserable year that was 2009. Free cash flow that turned positive last year remains so today.

Granted, the company's only barely FCF-positive and trades at a triple-digit multiple. The really neat thing about the company, though -- and the thing that could turn it into a real superball of a stock -- is this very marginal level of Infinera's free cash flow, which at last report is running at less than $1 million a year. When a company teeters on the cusp of free-cash-flow-breakeven, like Infinera is, it could easily tip either way. It could drop back into cash-burning status (which Infinera has plenty of cash to fund) or it could emerge into wild profitability.

To my Foolish eye, the trends at Infinera suggest it's leaning toward the latter possibility. But that's just my opinion -- I could be wrong. What we'd really like to know, is what you think about the company. Is Infinera going to be able to make a go of this 100G thing, or will rivals like Alcatel, Ciena, and Cisco head it off at the pass.

Click over to Motley Fool CAPS now and tell us what you think.