5 Superball Stocks

When stocks fall fast and far, they sometimes set themselves up for remarkable rebounds. The following equities suffered dramatic drops over the past week. With help from the 180,000 members of Motley Fool CAPS, we'll see whether any of them have the potential to bounce back.

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?

For the most part, we can sum up these companies' troubles in one word: earnings. Starting at the top, CR Bard reported a misnomer of an "earnings" quarter on Friday. In truth, the company didn't earn anything at all, but rather lost $0.55 per share. As Bard's P/E spiked to 25, investors abandoned the stock.

In other medical stock news, Healthways beat projections for revenues in the second quarter, but missed analyst earnings estimates by a penny. Guidance was unchanged, but that didn't prevent JMP Securities from slapping Healthways with a sell rating -- or keep investors from selling the stock.

Fortinet, meanwhile, managed the neat trick of beating earnings for the second quarter -- but still posting a losing week. The problem here was guidance. Management forecast a steep drop-off in revenue growth for the third quarter, dropping from the 34% it achieved in the first half of the year down to 20% in Q3 -- and just 24% for fiscal 2011 as a whole.

On the flip side, Riverbed hit rock bottom when earnings met forecasts, but revenue fell short -- only by about $2.5 million, or about 1.5% of the total revenue haul. However, as fellow Fool Anders Bylund pointed out, Mr. Market can be pretty unforgiving when a stock that's near-tripled in value in 12 months fails to deliver anything short of perfection.

And last but not least: Seagate. The company beat earnings in fiscal Q4 2011, but like Fortinet, refused to promise a similar beat for fiscal Q1 2012. Indeed, management told investors to expect about 25% fewer earnings than Wall Street was expecting -- a promise that cost Seagate shareholders 17% of their investment. That sounds pretty bad, but among these five popular stocks this week, I think the drop in share price makes Seagate look cheap enough to bounce.

Why Seagate, and why now? Let's see what CAPS members have to say about it first, before I weigh in ...

The bull case for Seagate
ipsiety likes the "low P/E" at Seagate, the fact that it pays a dividend, and the modest "1.3% insiders" stake in the company.

CAPS member skippyfx adds that he's a fan of the company's hard drives, and "[uses] their products almost exclusively." Between the possibility that Seagate may be acquired, and the likelihood that even if it doesn't, there's still "plenty of room to grow with solid state drives and now they have samsung," skippyfx is pretty sure the stock "is a bargain" at today's prices.

As for the sell-off itself, All-Star investor EnigmaDude assures us it's an "over-reaction" to guidance that may prove to be conservative. I agree.

Buy the numbers
Why? Well, leave aside the outlook for a moment, and focus on the facts of what Seagate has already accomplished. Based on trailing-12-month results, Seagate currently sells for just 9 times earnings, and a bit less than 15 times free cash flow. That doesn't seem too expensive when you consider that even after the earnings warning, analysts expect Seagate to post earnings growth of 30% next year, and average respectable 11% growth over the next five years. (The company also pays a modest 2.1% dividend.)

Now personally, I'm still partial to Seagate's archrival Western Digital (NYSE: WDC), which costs more on a P/E basis, but generates superior free cash flow and outperformed Seagate this earnings season (upping guidance to boot.) I also like more pure-play flash memory makers such as SanDisk (Nasdaq: SNDK) -- which I own, and which similarly hit it out of the park on earnings last week. Both of those stocks, however, have already had their bounces. Seagate's still awaits.

Will Seagate make it happen? Click over to Motley Fool CAPS now and tell us what you think.