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?
Coeur d' Alene Mines
Silver Standard Resources
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's 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?
In most cases, the answer's written right there in the company name: silver. Spot prices on the metal tumbled early last week, taking the market caps of Hecla Mining, Silver Standard, Coeur d' Alene, and Silver Wheaton along for the (bumpy) ride. An unpleasant experience to be sure, but I doubt too many people were too upset by the drop. Even after the sell-off, most of these stocks are still sitting on gains several times as large as the broader S&P 500 enjoyed for the past year. Little wonder, then, that these companies continue to retain significant investor support, scoring three- and four-star ratings on CAPS.
Of course, such strong price appreciation does bring with it a downside. At 35 trailing earnings, Hecla shares look awfully pricey today. Silver Wheaton's even more expensive at 54 times earnings, while Silver Standard and Coeur d'Alene don't even have P/E ratios ("P"rices they've got, but what they're missing is "E"arnings.) While many investors continue to like silver stocks despite the high prices, I personally prefer to do my treasure hunting a bit more downmarket -- which is why this week we're going to pass right over the miners, and focus instead on Family Dollar.
The bull case for Family Dollar
What's to like about Family Dollar? CAPS member rrowntree states it plainly: "Excellent FCF, Cash on hand, Low Debt to Equity, good growth for the sector." With long-term growth projections north of 14%, analysts believe Family Dollar is ideally positioned to outgrow both of the behemoths of "discount" retailing -- Target
CAPS member mwolf12 agrees that it's a very fundamentally strong company, and thinks the timing looks good as well. CAPS member 2win points out: "poor people shop here. This one is soaring, with the U.S. population becoming poorer."
Simpler stocks for simpler times
With unemployment still stubbornly stuck north of 9% that's probably true, but to my Foolish eye, not all the reasons for liking Family Dollar are so dreary. You see, to me, Family Dollar isn't just a "play on poverty," but a place to seek simplicity.
I mean, seriously folks, if all you need is a bar of soap, a bottle of dish detergent, or a box of Cracker Jack, do you really need to trek all the way out to the county Wal-Mart and hike through miles of aisles to find it? Isn't it easier to just dash out to the local discount store?
Sure, Wal-Mart has 27 varieties of laundry detergent to choose from, and it's hard to beat the prices. But if you have a load of laundry in the wash, no detergent to do it with, and the kids need clean clothes in an hour, I'd argue that's the kind of situation in which "any brand will do" -- and you know Family Dollar is going to have something on the shelf that will get the job done. To me, Family Dollar and its lookalikes, Dollar General and Dollar Tree, have morphed into the 21st century equivalent of the old five-and-dime. They're what Wal-Mart used to be before it tried to become all things to all people, a place to get what you need, quickly and at a fair price.
Foolish final thought
Call me a Luddite, call me a Fool, but that seems to me a business model that's bound to succeed. It's also, as fellow Fool Sean Williams pointed out last week, an eminently profitable model for Family Dollar. And as for "fair prices," I have to say that paying less than 17 times earnings for growth that's close to 15% per year going forward isn't all that unreasonable. Toss in Family Dollar's modest 1.4 % dividend to sweeten the deal, and it's very close to "bargain" territory.
Of course, that's just my opinion. If you have a different view of Family Dollar, here's your chance to set me straight. Click over to Motley Fool CAPS, and sound off.
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 was recently ranked No. 701 out of more than 170,000 members. The Fool has a disclosure policy.
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