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 140,000 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 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
Last week was a tough one for Mr. Market, and these five companies fared worse than most. What set them to tumbling? The answers range from "no news" to real news that ... seems to have had no effect.

MEMC got kicked in the gut right out of the gate, hit by a downgrade from Citigroup on Monday. But like solar fellow-traveler Suntech ... and First Solar (NASDAQ:FSLR) ... and Sunpower (NASDAQ:SPWRA) ... and on and on -- MEMC held up pretty well until finally succumbing along with the rest of the market on Thursday. The other stocks, although free of downgrades, still slumped along all week long, before dropping dramatically toward week's end.

It gets a Fool to wondering -- when stocks fall on no news in particular, isn't that the best time to buy? For one stock in particular, I believe it is.

The bull case for Rofin-Sinar
Don't be fooled by the name. All-Star SimonSaysSell actually thinks you should buy Rofin-Sinar. Why? "Lasers! Who doesn't love lasers?" Count CAPS All-Star Trimalerus among those who do love lasers. Writing in March: "Laser cutters have so many uses that this stock is more diversified than more traditional IT stocks. Good buy to hold." In fact, around about the same time Trimalerus was saying that, TheBarnacle postulated that this stock had an "[i]ntrinsic value of 44.02 with great debt sheet."

Of course, Rofin-Sinar is trading at less than half that price today. Does this mean the stock could double?

Actually, maybe, yes
Now, I know the company doesn't look cheap right now. There's the 26 trailing P/E to contend with, and the expectation that this year's weakened earnings could push that number up to 31 as a forward P/E. But consider what's going on under the covers here.

Rofin-Sinar's high P/E ratios derive primarily from depressed profit, as calculated under GAAP. But when viewed from the perspective of the actual free cash flow it generates, things aren't going badly at all. Rofin-Sinar actually generated more than $61 million in free cash flow over the last 12 months, or roughly 2.5 times what it reported as "net income." Valued on this free cash flow, the stock sells for barely 10 times its trailing free cash. (And when you net out the company's nearly $77 million in net cash, the enterprise is valued at an even lower price.)

If, as analysts project, Rofin-Sinar can emerge from this recession and go on to post 14% annual growth in its business, that looks like not just a reasonable valuation -- but downright cheap.

Time to chime in
Of course, that's just my opinion. If you don't agree, then not only do I not blame you (because of that high P/E again), but I'd actually love to hear why you think this argument is bunk. If you believe that Rofin-Sinar deserves the punishment it reaped last week, and may even be set to fall further, then here's your chance to warn us away from the stock.

Click over to Motley Fool CAPS and tell us why you think this particular superball will fall flat.

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