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 more than 180,000 members of Motley Fool CAPS, we'll see whether any of them have the potential to bounce back.
It's been awhile, but thanks to last week's sell-off, we once again have a chance to stand beneath Mr. Market's silverware drawer in hopes of snagging a bargain. Let's meet today's contenders:
How Far Below 52-Week High?
CAPS Rating (out of 5)
United States Natural Gas
Five super falls -- one superball
Last week was a rough one for many investors, as more than 2,000 stocks ended the week cheaper than they began it. More than 100 stocks -- including the five named above -- were literally decimated, losing 10% or more of their market cap in just a few short days. So what went wrong?
Beginning at the bottom, there's big, bad news out of little electric-car pioneer Tesla. On Friday, the company revealed that both its chief engineer and the engineer in charge of developing Tesla's new make-or-break Model S chassis had left the company sometime in January. Tesla spun the news as employees who had completed their work moving on to "tend to personal matters."
As bad as this sounds for Tesla, WebMD suffered an even more critical departure when CEO Wayne Gattinella resigned from the company, and the board confirmed that buyout talks with investors had collapsed. The stock's price quickly followed suit -- down 30% in a day.
Speaking of disappearing acts, what's going on with natural gas prices -- and the ETF that purportedly tracks them? U.S. Natural Gas started the year off strong, but by last Friday, it had fallen to a 12% loss for the year. And with nat-gas supplies high, and national temperatures higher than average, too, U.S. Natural Gas may be in for more rough sailing ahead.
Finally, bad news was also in fashion at Tiffany, which warned investors of a "marked" downturn in jewelry sales over the holiday season. Tiffany also sliced 5% off of its full-year profits forecast, prompting shareholders to subtract 10% from its market cap by week-end.
The bull case for Hecla Mining
Which brings us, finally, to silver miner Hecla -- the only weak performer on today's list that still commands strong, four-star support from investors on CAPS. Hecla got crushed last week when federal regulators ordered one of its mine shafts shuttered for removal of accumulated debris. Two days before Friday the 13th, the unfortunately named "Lucky Friday" mine got shut down, turning Hecla into (in the words of Fool analyst Christopher Barker) a "one mine wonder, " wholly (if temporarily) dependent on its Greens Creek mine in Alaska for its fortunes.
But if you ask CAPS investors, that's not the death sentence for Hecla that Wall Street seems to think it is. Christopher points out that Hecla has "roughly $246 million in cash and an undrawn $100 million credit facility" to tide it over through this crisis. CAPS member cbwang888 reminds us that silver is selling for "$30/oz," making "$4.5 ... a cheap" price to pay for Hecla shares. "Lucky Friday is not so lucky but it is delayed of production, not losing the property..."
And doinitmyway agrees, pointing out that Hecla is a "very old company" (established in 1891), and "has weathered storms before and a good value now."
I agree. Looking at Hecla from the perspective of a plain-vanilla P/E perspective, the company doesn't look at all expensive at 11.5 times earnings. Despite its troubles, analysts still see Hecla growing earnings 8% per year for the next five years. Add in a 1.7% dividend, and you get pretty close to a fair valuation on the stock without having to dig too deep.
If you do choose to dig, though, the picture gets even better. Hecla generated more than $187 million in free cash flow over the past 12 months -- that's half again as good as its reported net income. Value the company on FCF, therefore, and it's trading for a mere seven times multiple -- before you even factor in Hecla's net cash (which makes the company look cheaper still). Best of all, Hecla has consistently reported free cash flow superior to its net income for four years running, suggesting this is more a trend and less a fluke in the valuation.
With silver reserves worth $4.2 billion at $30 a troy ounce, and gold worth an additional $1.2 billion at $1,600, Hecla already looks pretty cheap at a $1.3 billion market cap -- before you even consider the worth of its baser lead, zinc, and other assets. Seeing now that the company is also a bargain from an earnings/free cash flow perspective, I think the bull case for Hecla is clear. Hecla's fallen far, but it's got the assets and earnings it needs to bounce right back -- superball-style.
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Motley Fool newsletter services have recommended buying shares of Tesla Motors, but 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. 330 out of more than 180,000 members. The Fool has a disclosure policy.
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