5 Superball Stocks

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:

Companies are selected by screening on finviz.com for abrupt 5% or greater price drops over the past week. The 52-week high and recent price data provided by finviz.com. CAPS ratings from Motley Fool CAPS.

Lotsa bad news out there ...
Markets kept climbing higher last week, but not all investors shared in the glory. Take Capstead Mortgage, for instance. When the mortgage real estate investment trust cut its dividend yet again last week, investors headed for the hills -- and rightly so. At $0.26 per share, the third-quarter payment will be less than half what Capstead investors were collecting one year ago. Nor were Capstead investors the only ones shocked by a management surprise. Over at DryShips, management said it will issue up to $350 million in stock, which is extremely dilutive.

Remind me: Who was it who said some DryShips investors were "the dumbest investors in the world?" (Hint: It was former Barron's editor Kathryn Welling, but she was paraphrasing DryShips' CEO.)

In other news, Bank of America downgraded Visa on fears that Congress will lower the boom on interchange fees for debit card holders. (With Visa being king of the debit card business, BofA thinks MasterCard (NYSE: MA) is a safer play -- but only somewhat. The banker rates both of 'em a sell.) And a particularly bird-brained downgrade from Avian Securities did similar damage to Veeco. Seems Avian believes that a supply glut in the LCD industry is going to do a number on L-E-D sales as well, hurting business at Aixtron (Nasdaq: AIXG) and Veeco alike. (Maybe so, but regardless of the short-term impact, both stocks are screaming cheap (in my opinion).

The bull case for Dolby Labs
Chances are, it's the same LCD supply glut that weighed on Dolby shares last week. Presumably, what's bad for makers of electronics entertainment hardware is considered similarly bad for the maker of the audio technology that powers 'em. CAPS member createyourluck praises Dolby for keeping "rasor sharp focused at what it does," yet at the same time managing to be "everywhere before or eyes...and ears and it sounds sweet." Which as we're now seeing, may be considered a double-edged sword.

But wherever the cycle takes us in the short term, trurl9 reminds us that "Dolby is in Windows and 3-D movies; international growth in India, China and everywhere; growth year after year; Dolby trends toward ubiquity."

And there's no reason to expect this will change. After all, as Avedis95 points out, Dolby's not sitting on its laurels, but investing in "excellent long-term research, development, and marketing strategies."

Dolby will deliver
Lest we forget, Dolby's got plenty of wherewithal to survive the short-term and enjoy the long-term success that Avedis95 predicts for it. A superb and consistent cash producer, Dolby generated $308 million in free cash flow over the past year -- 17% more than its reported net "profits." Dolby's ability to churn out the cash in good times and bad has the company sitting on a cash war chest topping $810 million.

Net out that cash, and divide Dolby's resulting enterprise value by its free cash flow, and what you're looking at here is a business selling for just 17.5 times its annual rate of cash production. And while that may not be a bargain if all Dolby manages to do is match Wall Street's projected 16% long-term growth rate, it's worth remembering that this company trounced analyst expectations in each of the past four quarters.

Foolish takeaway
To me, this suggests that even if Dolby isn't a screaming bargain right now, it is at least attractively priced -- but maybe not for long. If Avian and its analytical peers turn out to be wrong about the decline in sales at consumer electronics companies, Dolby shares could rebound in a hurry.

Of course, that's just my opinion. If you disagree ... well, don't be shy. Tell us about it.