5 Superball Stocks

"'Don't catch a falling knife' ... The idea of buying a former superstar stock at a discount price certainly has its attractions, but you've got to make sure you catch the haft -- not the blade."

So runs the thesis of my recurring Fool column "Get Ready for the Bounce," in which we search among the wreckage of Mr. Market's overturned cutlery drawer, hoping to find future winners in a pile of 52-week losers. But do we really need to sit around for a whole year, waiting for a potential bouncer?

I say nay. Sometimes, stocks fall far 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're going to look at a few equities that've suffered dramatic drops over the past week. With a little help from the 145,000 members of Motley Fool CAPS, we hope to find an opportunity or two for you:

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
The Thanksgiving holiday cut deeply into trading time for investors last week, but never fear -- the five stocks named above all found ample time to plunge. Dell's demise was a drawn-out affair, as investors took their time figuring out just how badly the company is faring in its epic (and losing) struggle with Hewlett-Packard (NYSE:HPQ). At Brocade, it was fear of future weakness, in the form of an anemic sales forecast that tanked the stock. Meanwhile, in India, reports of additional accounting "issues" at Satyam laid that stock low on Wednesday.

In contrast, it's not quite clear what lies behind the declines at the two stocks topping our list. Neither Suntech nor Terex seems to have reported any "bad" news of note. And in fact, Fools are downright bullish on Terex, giving the construction and mining equipment-maker a full five CAPS stars. Let's find out why.

The bull case for Terex Corp
CAPS All-Star Khorshid believes that: "Like [Caterpillar (NYSE:CAT)] this company will see great rises in its equity because the developing world will continue to develop and the US government will spend on infrastucture to stimulate growth. Great price right now. "

And it seems insiders agree. Reports of recent "insider buying," convinced fellow All-Star bklynmp3j to rate Terex an outperformer in August.

Speaking of "insiders," one of the great things about CAPS is that with 145,000 investors (and counting), we're bound to have a few people rating our stocks with first-hand knowledge of what they're talking about. luciouscalvin is one such Fool. Writing in May: "'I'm a heavy equipment operator myself. [Terex] is basically the maker of the scrapers that the companies that cant afford all CAT machines but, and or they dont need the bigger cat machines for a job. [Terex] isn't going anywhere."

And yet, with our housing market still in the dumps and the federal transportation bill stuck in a legislative pothole, is all this optimism about Terex misplaced? After all, the company is laden with debt, unprofitable, and last quarter alone saw its revenues slide more than 50%. Where's the proverbial light at the end of this long recessionary tunnel?

Shine a light on Terex
Terex glow-seekers have no farther to look than the cash flow statement for the first glimmers of hope. It's here we find Terex returning to its past levels of annual free cash flow production, as the last 12 months saw cash profits surge to $130 million, up from the mere $63 million produced in 2008. As these dollars migrate from cash flow statement to income statement, we should see Terex gradually return to "profitability."

Time to chime in
Now personally, I'm less than confident that Congress will step in with transportation funding early enough to justify buying Terex at today's prices. Even after last week's tumble, the stock looks too richly priced to me for its 6% projected long-term growth rate to justify.

But hey, I could be wrong. If the government steps up, or if the housing market bounces back faster than I expect, Terex could bounce. So don't be afraid to bet against my pessimism – join the optimists who've rated Terex five stars. Start here. (If you dare.)

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