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:
|
Company
|
How Far From 52-Week High? |
Recent Price |
CAPS Rating
|
|---|---|---|---|
|
Infosys |
(19%) | $63.21 | *** |
|
Freeport-McMoRan |
(16%) | $51.17 | **** |
|
Stillwater Mining |
(21%) | $20.55 | **** |
|
North American Palladium |
(26%) | $5.87 | **** |
|
InterOil |
(21%) | $64.76 | * |
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
There are 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, analysts called a top on InterOil Tuesday. Raymond James cut the stock to "market perform" on fears that InterOil's new liquefied natural gas project will eat up cash flow, delaying other projects that could have otherwise moved the stock higher. It didn't help matters that oil prices took a simultaneous tumble. End result: The stock shed 12% last week.
Elsewhere in the markets, commodities begat falling stock prices at North American Palladium, Stillwater, and Freeport-McMoRan. Goldman Sachs sounded a worried note about valuations in the commodities sector. More broadly, as fellow Fool Matt Koppenheffer explained last week, Wall Street is viewing Glencore's IPO as a clue that commodity prices have peaked and that it's time to cash out.
Finally, Infosys suffered a particularly spectacular blowup Friday, with shares falling 13% on a revenue miss and weak guidance for the current quarter. Considering the suddenness of the fall -- and my own expressions of support for the stock in years past -- you might expect me to target Infosys as the one stock on this week's list that is best positioned to bounce back. It isn't.
The bull case for Freeport-McMoRan
Don't get me wrong. I still think Infosys is a great company. The problem with Infosys is more one of valuation, which at 24 times earnings, exceeds the P/E multiples on offer at major IT services like IBM
It's not just me saying this. Over on CAPS, member kjherrmann argues that "demand for copper should increase substantially due to the rebuilding that will take place in Japan over the next few years." Fellow CAPS member gilboy7 adds: "How about Gold? Silver anyone? At the rate that the fed is spending, dare I say printing, money anything with tangible value is a must own." Meanwhile, CAPS member IronSulfide likes the stock's "Low PE plus div," and wonders whether the stock offers "hopefully some inflation protection?"
I expect that it does, but honestly, I don't think you even need to speculate about that to see the attraction in Freeport shares today. Selling for just 11 times earnings, and for less than 10 times free cash flow, Freeport already looks like a bargain if it can grow at the 10% long-term growth rate that Wall Street expects of it. If Freeport does better -- grows closer to the 16% rate projected for the mining industry as a whole, for example -- the profits could be fantastic.
Time to chime in
I'm not betting on 16% growth, mind you. To my Foolish eye, 10% growth should be quite enough to reward investors over time. Meanwhile, Freeport offers a modest 1.9% dividend yield to compensate you for your patience while you wait for it to reach its potential.
It sounds like a fair deal to me -- but that's just my opinion. What's yours? Click over to Motley Fool CAPS now, and tell us what you think.
