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?

Recent Price

CAPS Rating

(out of 5)

Petroleo Brasileiro (NYSE: PBR-A) -6% $31.31 ****
VMware (NYSE: VMW) -11% $79.19 ***
Rackspace (NYSE: RAX) -8% $24.48 ***
American Express (NYSE: AXP) -22% $37.99 ***

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

What a week!
Dow reclaimed the 11,000 mark last week, but not everyone's cheering. Up above, you see four stocks whose shareholders became 5% (or more) poorer despite the Dow's reaching its milestone. What went wrong? In the case of AmEx, it's litigation behind the stock's meltdown. As MasterCard and Visa (NYSE: V) made their peace with government attorneys last week, over charges they had been strong-arming stores into paying higher-than-market rates for the card companies' services. But AmEx announced it will fight on -- and risks a heavier fine if found guilty.

At Rackspace and VMware, worries that the cloud-computing phenomenon may not be so phenomenal are weighing on the stocks. Data center specialist Equinix warned on revenues last week, and investors have been selling off anyone -- and everyone -- associated with "the Cloud." (Luckily for shareholders, both of these Motley Fool Rule Breakers recommendations had already soared to sky-high prices. That should cushion the blow a bit.)

Yet even as these stocks' prices move closer to "cheap," it seems few investors are rushing out to buy 'em. Fact is, the only stock on today's list that wins a four-star endorsement from Motley Fool CAPS members is Brazilian oil behemoth Petrobras. The shares got diluted by a massive $70 billion stock floatation last week. Fortunately, Petrobras management plans to put the money to good use ...

The bull case for Petroleo Brasileiro
Why would you want to own Petrobras, especially after the dilution? Nostrademous tells us the company intends to use the "cash to expend their operations as they are finding new oil and are getting ready for drilling."

Profitable drilling. CAPS All-Star samstevens says Petrobras "has literally been raking in the $$$, P/E is very low as well." Which to BadCopNoDonuts' way of thinking makes Petrobras "a better play than any of the majors at this point. Real growth potential. How much more can Exxon grow???"

Rhetorical questions, real answers
Good question -- but I'm not sure BadCop is going to like the answer. In fact, Wall Street analysts expect to see ExxonMobil (NYSE: XOM) post better than 11% annual earnings growth over the next five years. In contrast, these same analysts tell us that Petrobras will grow this year's $3.96 in per-share earnings at only about 3.5% annually through 2014.

This "growth gap" probably explains why right now, a share of Petrobras will set you back only about 7.5 times earnings, while Exxon shares command a 12.4 P/E.

Foolish final thought
One final point, and this one is in Petrobras's favor. As you may be aware, Petrobras shares come in two flavors -- the ordinary, common stock designated "Petrobras (NYSE: PBR)" and the preferred shares that appear on this week's list. If you're of a mind to buy "Petrobras" at all, I think the preferred shares offer the better bargain for three reasons:

  • First, they sell for a lower P/E than the common stock (which sells for 8.3 times earnings)
  • Second, you lose no dividend yield despite the cheaper price. Both common and preferred shares pay 0.5%.
  • Third and finally, while 3.5% growth doesn't exactly light up the sky, it's better than what analysts project for Petrobras common. Fact is, analysts expect earnings on the common shares to decline slightly over the course of the next few years.

Of course, when all's said and done, the best idea of all -- and the simplest -- is probably to ignore the distinction between Petrobras common and Petrobras preferred, and just buy the cheaper oil stock, and the one you know better: ExxonMobil. With its higher growth rate and much stronger dividend yield of 2.8%, I think the "Tiger" will eat this Brazilian monkey for breakfast.

Of course, that's just my opinion. What's yours?

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. 607 out of more than 170,000 members. The Fool has a disclosure policy.

American Express is a Motley Fool Inside Value recommendation. Rackspace Hosting and Vmware are Motley Fool Rule Breakers choices. Petroleo Brasileiro (the PBR one) is a Motley Fool Income Investor pick. And yes, The Fool also owns shares of ExxonMobil.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.