5 Superball Stocks

" 'Don't catch a falling knife.' ... The idea of buying a former superstar stock at a discount price certainly has its attractions, but you've got to make sure you catch the haft -- not the blade."

So runs the thesis of my recurring Fool column "Get Ready for the Bounce," in which we search among the wreckage of Mr. Market's overturned cutlery drawer, hoping to find future winners in a pile of 52-week losers. But do we really need to sit around for a whole year, waiting for a potential bouncer?

I say nay. Sometimes, stocks fall far 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're going to look at a few equities that've suffered dramatic drops over the past week. With a little help from the 160,000 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
Last week was a rough one for investors in these five companies -- but the reasons for their troubles weren't always clear. Starting at the bottom, Aetna's decline looks pretty cut and dry; the government sanctioned the company for improper denials of pharmaceuticals coverage to patients insured through Medicare, forcing the company to halt enrollments in this program.

Likewise, we can trace Energy Conversion's tumble to a media story last week. Barron's labeled Energy Conversion a manufacturer of "uncompetitive technology," destined to lose in the marketplace to "more efficient and cheaper" manufacturers Suntech Power and Trina Solar. And of course, it was the downgrade from JPMorgan Chase and a 36% decrease in its target value that hurt SunPower.

In contrast, I see no obvious catalyst dragging Exelixis lower. And as for Hologic, its patent dispute with Johnson & Johnson (NYSE: JNJ) is behind it now, and Hologic landed a $15 million contract to provide radiology systems to the Defense Logistics Agency. In all honesty, neither company's decline makes a whole lot of sense, and so Fools remain optimistic about both companies' prospects. But are they right?

You can read all about why we still love Exelixis in the newsletter that recommended it -- Motley Fool Rule Breakers. However, the Fool has not given its official stamp of approval to Hologic. For more on that story, we turn to our CAPS community of investors.

The bull case for Hologic
Hologic has long been a favorite of some of the smartest investors on CAPS. All-Star investor thebank10, for instance, praised the company last year for offering technology that: "stands as the best in their industry. Quite simply the stock is worth around $19-20." Plus: "At such a low price, a buyout seems very plausible given their bondholders current situation."

Hologic's low price also attracted All-Star kevinottofro's attention: "low relative PE, good star & 2010 earnings. Bottom fishing ..."

And yes, Hologic's P/E is lower than the average in its industry. (At least, the forward P/E is, if you trust such metrics. Radiological rivals General Electric (NYSE: GE) and Philips Electronics both trade several points higher.) Yet another of our All-Stars -- kcanant this time -- points out that Hologic is: "A company with a lot of debt, serial acquirer. Overpaid for cytec." None of that sounds particularly positive, yet kcanant remains upbeat on the stock, perhaps for the same reasons that have attracted some outperforming peers.

What's in Hologic's wallet?
For a company of this quality, I consider even Hologic's $1.2 billion in net debt more a quibble than a killer. You see, while Hologic appears to combine some of the worst attributes you'd fear to find in a stock -- debt on the balance sheet, losses on the income statement -- what really attracts me about this company is its cash flow statement.

It's there that we find Hologic generating a hefty $500 million in annual free cash flow -- strong enough to give this stock a less-than-10 price-to-free cash flow ratio. Why, even if you add in the debt, the stock sells for a mere 11.5 times enterprise value -- hardly exorbitant for a company with a five-year projected growth rate of 11%.

Time to chime in
With a compelling valuation relative to its competition, and a price that looks just plain fine all on its own, I think Hologic's bound to bounce back from its recent lows. But don't just take my word for it (or even the words of the 712 CAPS members who've put their reputations on the line in Hologic's defense, either).

Check out the stock yourself, and come to your own conclusion. Then click over to Motley Fool CAPS and tell us what you think.