The Motley Fool Previous Page

5 Superball Stocks

Rich Smith
February 3, 2013

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)

Harris (NYSE: HRS)




Dow Chemical (NYSE: DOW)




Advanced Micro Devices (NYSE: AMD)




Molycorp (NYSE: MCP)








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
As January morphed into February, the Dow Jones Industrial Average (INDEX: ^DJI) soared to its highest level in more than five years, passing 14,000 and drawing within a few points of its all-time high.

So happy times are here again, right? Well, not necessarily. And definitely not for shareholders of the more than 2,400 stocks that didn't just fail to hit five-year highs last week -- but lost money instead. Stocks like the five named up above. But what is it, exactly, that's been holding these companies back?

It's not always easy to tell. Take bottom-of-the-lister MannKind, for example. The inventor of inhalable insulin, Afrezza, still doesn't have FDA approval for its product, true. "Earnings" are due out two weeks from now, and no, the company's not expected to report a profit. But that's hardly news. MannKind has never reported a profit. While the company's prospects remain uncertain, they're no more uncertain than they've been in the past, which hardly seems to explain the selloff.

Or consider rare-earths miner Molycorp, making its second appearance on this list in as many weeks. The company's need to issue hundreds of millions of dollars from debt and equity is officially old news today, with no more recent bad news to continue driving the shares down -- yet down they go.

Our third subpar-rated CAPS stock (two stars, just like MannKind and Moly) is Advanced Micro Devices -- AMD to its fans. This one at least seems to be going down for a reason, because last week, bond-rater Fitch put its debt deep into "junk bond" territory with a new rating of "CCC" and warned investors to expect continued losses at the company as the year progresses. Analysts seem to agree -- AMD lost money last quarter, and the quarter before that, and appear set to lose even more money in the current quarter.

But it's not all bad news. This week, we actually have a pair of five-starred CAPS stocks -- Dow and Harris -- dueling for top honors. Which of them is most likely to rebound? Let's find out, as we examine ...

The bull case for Dow Chemical
Endorsed by 94% of the Fools who've rated it so far, Dow Chemical enjoys strong support on CAPS. And why shouldn't it? As EmotionalTrader argues: "Chemicals make the world go round." The Fool's own TMFCane, too, while admitting that "margins are shaky," still thinks "Dow looks like a safe long-term bet."

And I suppose there's good reason to think so. After all, Dow is no spring chicken. The company's has been around since 1897 and has weathered more than a century of economic ups and downs en route to today. The company pays a strong 3.9% dividend yield and, while it's true the P/E ratio is a bit high (the stock sells for north of 46 times earnings, in fact), Dow generates very strong free cash flow. The $1.5 billion in cash profits it reported last year give Dow a 25.5-times-free-cash valuation.

Still, if you ask me, that's quite a lot to be paying for a company that few analysts see growing faster than 7% a year over the next five years. Even with the dividend to support it, I see Dow as about twice overpriced, and unlikely to bounce from these levels.

What about Harris?
So let's mov