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, tiny TV star TiVo reported earnings last week. Revenue dropped 9% year over year, and the company's quarterly loss tripled to $0.30 per share. So it's no shock that the stock is off 11% on the news.

Next up, Vivus. Here, it's not the company to blame so much as it is the dreaded Food and Drug Administration. Seems the government is worried that a Johnson & Johnson (NYSE: JNJ) epilepsy drug called Topamax, which contains an ingredient called "topiramate," may pose a risk of birth defects. As fellow Fool Matt Koppenhoffer explained: "What does this have to do with Vivus? Its obesity drug, Qnexa, is a formulation of appetite suppressant phentermine and -- you guessed it -- topiramate." Doh!

Blame the government for LDK's fall, as well. The Italian government. Last week, Italy passed a law that would cap subsidies for solar power installations in the country. A lot of folks seem confused about the law's effect, though, and so I asked Axiom Capital solar analyst Gordon Johnson to explain it to me last week. His take: "Italy is the market of last resort." Take away Italy's ability to soak up excess solar panel supplies, and this "will cause a massive move lower in prices." Johnson sees this as bad news for Trina Solar, for Yingli Green Energy, for JA Solar and ... for LDK.

Similarly, you can blame China for the collapse at Cree. Citigroup warned last week that China's subsidies for the LED lighting industry won't last forever. While an admittedly vague warning, investors seem to be looking at Cree's 27 times P/E ratio, and thinking "too rich for the risk."

But what's the deal with RF Micro?
Curiously, this may be the factor weighing on RF Micro shares as well. While you ordinarily think of RF as a maker of cell phone chips (and rightly so), last week RF bragged that it's got a new technology for making solar cells as well -- suggesting the company may be preparing to jump into the ultra-competitive solar market at the very moment it's prepared to crash.

And yet, if you poll the CAPS community, this risk doesn't seem to faze them. CAPS member Whizkid81 points out that "revenues are rising again." fundamentalcall is encouraged to see "reducing reliance on Nokia," and believes "recent contracts with Samsung and LG should ride the Android storm."

All-Star investor and Fool tech guru TMFZahrim agrees, writing recently that while RF Micro has lost ground to "chief rival Skyworks Solutions (Nasdaq: SWKS). ... RF Micro is taking action against that specific risk factor [the connection to Nokia] and deserves a stronger valuation than it's getting."

Fools of a feather ...
I agree. At just 15.6 times earnings, RF Micro's price isn't a patch on the 38 times multiple investors are paying for Skyworks. This, despite the fact that the two companies' growth rates look very similar (RF is pegged for 15% annual growth over the next five years; Skyworks, for 16%.)

I'd also point out that with free cash flow now coming in north of $211 million per year, RF Micro is actually a whole lot cheaper than even its P/E ratio suggests. Fact is, RF Micro generates free cash nearly 66% greater than what it reports as "net income" under GAAP. Value the stock on its free cash flow, therefore, and you're looking not at a "15 P/E stock," but at a company that costs less than 10 times the amount of cash it generates in a year.

Foolish takeaway
Call me an optimist, call me a Fool -- but I think that's a great price to pay for a 15% grower like RF Micro Devices. So while I'm less than enthused about the company's sudden interest in solar, for the time being that's just talk, and not affecting the value of the company. Talk, as they say, is cheap -- and so is RF Micro.

That's my opinion, at least. But what do you think? If you've got an opinion on RF Micro Devices -- pro or con -- we've got a place to state your case. Click over to Motley Fool CAPS now and sound off.