In my recurring Fool column, "Get Ready for the Bounce," we search for future winners in a pile of 52-week losers. But do we really need to sit around for a whole year, waiting for a fallen stock to bounce back?
Nope. Sometimes stocks fall hard, in far less time than a year. And like a superball dropped from the balcony, the harder they fall, the higher they bounce. Today, we'll look at a few equities that've suffered dramatic drops over the past week. With a little help from the 170,000 members of Motley Fool CAPS, we hope to find an opportunity or two for you:
How Far From 52-Week High?
Rare Element Resources
Advanced Micro Devices
Companies are selected by screening on finviz.com for abrupt 5% 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?
Well, to begin with, the law of gravity looks to be biting highfliers Molycorp and Rare Element Resources. Buoyed by Chinese export restrictions and ensuing fears of supply constraints on "rare-earth" metals, shares of both stocks have been flying lately. But according to Business Insider, the good times are about to come to an end as the lock-up period on Molycorp shares expires Jan. 20, opening the floodgates to a wave of (potential) selling by early investors. If that comes to pass, the selling pressure could cascade over onto Rare Element, taking both stocks down.
Similar concerns surround AIG, which just paid back the last $21 billion of its New York Fed loan, and converted Treasury-owned preferred shares into common stock -- 92% of which is now owned by the U.S. government, and about to go on the block. Whatever the merits of the argument, it seems apparent that investors fear a wave of selling pressure once AIG does its "re-IPO," and are trying to get out while the getting is still (relatively) good.
AMD is a different story, but no mystery. Archrival Intel is dominating the market for server chips, while NVIDIA seems intent on capturing the market for graphics chips in the Apple iPad and related devices. Adding indescribable insult to injury, the company's CEO just got the boot, adding management turmoil to the mix.
To sum up, there's plenty of reason for all of these stocks to have fallen and plenty of explanation for why many CAPS investors are down on the stocks and assigning them subpar one- and two-star ratings as a result. But, as you've probably noticed by now, there's one stock on today's list that bucks the trend.
The bull case for National Grid
The U.K.'s largest labor union, Unite, announced Thursday that in the wake of failed contract negotiations with National Grid, it is initiating an "industrial action." That explains the stock's decline last week. But what explains investors' raving, five-star enthusiasm for the stock despite this bad news?
In three words: It's the dividend. CAPS member kleyau cited a "6% dividend" at National Grid as key to up-thumbing the stock earlier this month. CAPS member stuartgordon69 thinks it will go higher, shouting: "SHOULD DOUBLE EARNINGS AND DIVIDENDS IN LESS THAN 10 YEARS.
Either way, CAPS member secondo calls National Grid "a quality stock at a decent price," while All-Star investor ajm101 argues that "with the Fed announcing a 0% target, safe yields should get greater investor attention," whatever the precise dollar amount.
But how safe is National Grid's dividend? Pretty darn safe. Right now, only about 73% of National Grid's earnings are earmarked for dividend payouts, so profit would have to take a pretty big hit before that would affect the yield. Even better -- no such hit is anticipated; to the contrary, most analysts who follow this stock are predicting better than 7% annual long-term earnings growth at National Grid over the next five years.
That's roughly twice the growth rate expected out of rival electric utilities like Consolidated Edison
Time to chime in
Personally, when I look at National Grid today I cannot help but think our CAPS members are onto something. A 10 P/E stock, paying 7% in annual dividends, and growing at better than 7%? That's a bargain!
Or so say I. Got a different opinion of National Grid? Tell us about it on Motley Fool CAPS.
National Grid is a Motley Fool Income Investor pick, but Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 712 out of more than 170,000 members. The Fool has a disclosure policy.
Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.