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?
(out of 5)
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
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 several cases, the answer's splashed across the headlines of every newspaper, every day: Japan. The ongoing nuclear crisis has taken a terrible toll on that country and hasn't done any favors for nuke stocks, either. Nuclear construction specialist Shaw Group and uranium suppliers USEC and Cameco have been notable casualties of the meltdown.
In contrast to the disaster in Japan, which will probably take years to clean up, my Foolish colleague Matt Koppenheffer thinks Nike's troubles are temporary. Business is growing, and although higher costs because of rising commodity prices could persist, Nike should be able to pass on that burden to consumers. It's little consolation to investors who suffered from last week's earnings miss, of course, but long-term investors needn't worry.
In fact, judging from the ratings our CAPS community is turning out, there's little reason to worry about any of these stocks. In the eyes of CAPS members, they're equally attractive, but to me, one stands out above all the rest: MedcoHealth. The SEC and the California Attorney General's office are investigating whether it was improper for Medco to hire a former CEO of state pension fund Calpers to help it win pharmacy benefits work.
Scary news? Sure. But in the grand scheme of things, the factor that laid Medco doesn't rise to the level of a nuclear disaster. In fact, a lot of Fools seem to think it a tempest in a teapot that will soon blow over. When it does, they think Medco will be revealed as for real bargain it is.
The bull case for MedcoHealth Solutions
After all, as CAPS investor Highlander1891 reminds us, Medco has weathered its share of storms in the past: "This company has been around for a long time with a successful track record in health care. The company has some new products to hit the market in next 12 months that will be in high demand by consumers."
In particular, CAPS member InvestorTheHaun believes that "generic drugs coming for Lipitor among others will positively impact earnings in the next two years."
That's bad news for Pfizer
Nor are these Fools alone in thinking so. Up on Wall Street, the consensus among analysts is that Medco could see its profits grow as much as 16.6% per year over the next five years. With the stock trading for just 16.6 times earnings, you might think that's only appropriate, but in fact, Medco's much, much cheaper.
Consider: Over the past 12 months, Medco reported GAAP profits of $1.4 billion, but its actual free cash flow for the period was nearly 50% higher: $2.1 billion. As a result, the company's price-to-free cash flow ratio is just a skosh above 10, a price that looks very cheap if the company can manage to come anywhere close to the 17% growth rate that's forecast for it.
Time to chime in
With a margin of safety this big (and an endorsement from Motley Fool Stock Advisor to boot), I personally believe MedcoHealth Solutions is a good bet from today's prices. But forget about me -- what do you think about the stock? Tell us about it on Motley Fool CAPS.
Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 515 out of more than 170,000 members. The Fool has a disclosure policy.
Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.