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. 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?

Beginning at the bottom, rising food costs (read: "inflation") took a bite out of profits at Sysco. The company played nice with its customers, though, declining to pass the full cost of higher prices on to struggling restaurateurs. Result: A 4% fall in fiscal second-quarter profits.

In contrast, at Teva, it wasn't profits that were the problem. (Actually, they doubled in comparison to last year.) Rather, weak profits guidance for the year to come did in the Israeli drugmaker. While not the worst news in the world, it was bad enough to send Teva down 7% for the week.

Likewise with Activision. It's hard to call the company's 2010 numbers "bad" -- after all, the company did generate in excess of $1 billion in free cash flow. Still. axing Guitar Hero will prevent the video games giant from meeting expectations in this year's fiscal Q1. Cue sell-off.

Yongye? No International mystery there, either. Between a critical article on Seeking Alpha-dot-com (read it here) on the one hand, and a downgrade from Brean Murray on the other, shares of the tiny Chinese fertilizer maker are being ground into dust. Damage report: 5% and counting.

Last but not least, NVIDIA shares are showing weakness ahead of this week's earnings release. Reason to worry? Not necessarily. In part, NVIDIA is reacting to a downgrade from ThinkEquity early last week. But when you consider that ThinkEquity has never been more than a middling analyst in semiconductors, I wouldn't fret too much over that. On the other hand, a growing number of pundits are muttering about the growing threat from Intel (Nasdaq: INTC) and Qualcomm (Nasdaq: QCOM) in graphics chips. With luck, we'll learn more about this when earnings come out. Meanwhile, at 64x earnings heading into earnings ... the shares are priced for perfection. Fingers crossed, that "perfection" is what NVIDIA delivers.

Who's got bounce-a-bility?
The good news for NVIDIA investors, of course, is that with earnings due out Wednesday, there's a clear catalyst for the shares to bounce. The bad news -- judging from their five-star ratings, at least -- is that CAPS members seem to believe Sysco and Teva are better candidates for a rebound. And I agree. At less than 15 and 16x earnings, respectively, Sysco and Teva shares are priced cheaply. It shouldn't take much on the good news front to send either one higher. Of the two, I prefer Teva -- but before I tell you why, let's let our CAPS community tell you how Teva earned its five-star rating in the first place.

The bull case for Teva
According to CAPS member eremmell, the bull case here "is obvious." It's Teva's "focus on generic drugs" in a world of "aging populations and governments' desire to cut health care costs." Cheap drugs, growing customer base -- the math here is pretty easy.

AFlamik believes Teva will benefit particularly from the "health care overhaul" in the U.S., and its primary focus on cost-cutting.

Finally, tomshiff adds that with "more access to more drugs coming on stream" from Big Pharma majors losing patent protection, and "excellent fundamentals" in Teva's own right, the stock should do well.

Speaking of those fundamentals, I promised up above to tell you why I prefer Teva over Sysco, so here's the reason: Free cash flow. Teva's got it in spades, while Sysco suffers by comparison. You see, Teva isn't just an earnings powerhouse -- it's a free cash flow monster. Last year, Teva reported earning $3.3 billion in "profits" under GAAP. Its actual free cash flow, however, was $3.4 billion. Nor is this an isolated instance. Over the past five years, Teva reported earning $6.1 billion in net profits -- but its actual cash profits were 50% greater. Free cash flow for the same period came in at $9.2 billion. In contrast, Sysco's latest free cash flow tally came to less than a third of its reported GAAP profits.

Time to chime in
So while I admit I'm tempted by Sysco's low-teens P/E, and its beefy 3.5% dividend, at the end of the day Teva seems the healthier prospect.*

Disagree? Feel free? If you think one of these stocks deserves the five-star rating more than Teva does, click over to Motley Fool CAPS now, and tell us why.

*Just to be clear, I may not like Sysco, but I do still like Cisco.