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 have 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. Beginning at the bottom, weak numbers from rival Netlist did a number on STEC stock last week. Combined with continuing fears of a breakdown in flash memory margins, it's got investors running scared. Reverse "pin action" was similarly to blame at Level 3, where Oppenheimer downgrades of rival web facilitators Limelight and Akamai (Nasdaq: AKAM) inflicted collateral damage on Level 3 as well.

In contrast, I don't see anything in the news recently that would explain Terra Nitrogen going up in flames. CAPS member Nostrademous tells us that "agriculture is going up up up in 2011. These guys are a prime player in the fertilizer and phosphate business in the United Kingdom." At a bargain price of just 12 times earnings, Terra might bear some digging into.

What really intrigues me this week, though, is that we find not one but two of the Fool's own favorite Hidden Gems picks on the list: FormFactor and Natus Medical.

These are two of our favorite things
I've long been a fan of the latter, of course, and so admit I went into this column expecting to be tickled pink over the bargain at BABY. But I'm going to let Natus nap a while longer. So instead, this week we're going to be digging into ...

The bull case for FormFactor
Basically, the reason to be optimistic about FormFactor can be summarized in one word: Cash. A month ago CAPS All-Star BoiseKen puts it succinctly: "7.91 in cash. duh."

Now actually, it's got closer to $7.35 today. But still, if FormFactor has more than $7 in cash, why is the stock changing hands for only nine bucks and change?

CAPS member investorpoet2 explains:

Formfactor continues to lose money. In [the penultimate] quarter they lost $33.9 million on $57.6 million in revenue. Prior management did not prepare the company for the recovery in the semiconductor industry, and now the new management team is trying to play catch-up before the good times end.

markofzorro thinks "The turn around team seems headed in the right direction. Its a solid product and demand should grow much faster than that for chips."

Value in a nutshell
So in a nutshell, FormFactor has a lot of cash, but it's also burning a lot of cash. The company's basically racing to turn its business around before it runs out of money -- which it's currently burning at the rate of nearly $100 million a year.

At this rate, though, FormFactor has nearly four years to figure itself out. Call me a crazy optimist, but I think its new management team can probably get the job done with nearly half a decade to play with. Even if it can't, there's always the option of selling the company to someone who can. I mean, net out the cash, and you're looking here at a semiconductor industry shop that sells for 0.6 times sales! That's less than one quarter the valuation at Texas Instruments, or Intel (Nasdaq: INTC).

Foolish takeaway
To me, this seems like a sufficently large margin of safety to justify even BoiseKen's "duh" analysis. If you're patient enough to wait through the turnaround, or failing that, the exit strategy, this stock is literally a no-brainer.

If you think I've misplaced my gray matter, we'd love to hear your contrary view on FormFactor. Click here, and sound off.