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, USG reported a $105 million loss for its fiscal first-quarter Wednesday, basically flat against last year, and with revenues similarly weak. In other earnings news, Bank of America reported its Q1 numbers as well, and was quickly dubbed a "big loser" (among big banks) by banking analyst FBR. Earnings missed Street estimates, and to add to the confusion, B of A just hired its fourth CFO in less than two years.

Next door on banker street, Wells Fargo fared a little better. In fact, it showed the best return on assets of any of the Big Four megabanks (which in addition to itself and B of A, include Citigroup (NYSE: C) and JPMorgan Chase (NYSE: JPM)). But as mortgage banking revenues continued to slump, Wells' top line disappointed investors. Total revenues were 5% weaker than in last year's Q1, and the stock's off a similar amount.

And Google? I probably don't even have to tell you about Google -- but here goes. The biggest name in Internet Search grew its revenues 27% in Q1. But it grew its costs even faster, with the result that earnings failed to meet consensus estimates. Google reported earnings last Thursday, opened 8% lower Friday, and has been selling off ever since.

What all these four disasters have in common, though, is that the companies "did it to themselves." Their sell-offs came as a direct result of the profits the companies did (or didn't) earn in the quarter. In contrast, Tyco's bad news was not of its own making -- and this may explain why in contrast to the other four stocks on this week's list, investors still rate Tyco a superior four stars on CAPS, and believe it can beat the market.

The bull case for Tyco
To briefly review, a couple weeks ago rumors began emerging that French industrial conglomerate Schneider Electric wanted to buy Tyco. The French confirmed that talks had taken place, and investors began bidding up Tyco shares in anticipation of a $60 to $65 bid price -- and bidding down Schneider. So last week, Schneider disavowed the merger, stated unequivocally its preference for small, bolt-on, sub-$1.5 billion deals, and denied being interested in doing a $28 billion-plus deal for Tyco. The stock promptly deflated like a pricked balloon.

Regardless, investors remain keen on Tyco's prospects. CAPS member scpickert likes the company's "diversified" business model and believes "the corruption image is behind them."

Many Fools, genboto73 and ratamama among them, zero in on Tyco's ADT home alarm division as the company's crown jewel, while GoHorns12 thinks Tyco's acquisition of Brinks was a smart move.

Meanwhile, the Fool's own TMFZahrim praises Tyco for "grabbing its margins by the horns and steering the unwieldy multi-headed beast in a new and more manageable direction. This is not an exciting story about organic growth, but a tale of smart management of Tyco's assets."

As for me ... well, you already know what I think. At 16 times earnings, Tyco's not the cheapest stock on the planet, but it's certainly cheaper than Honeywell or United Technologies. More importantly, Tyco's cheaper than it looks, with net earnings under GAAP that understate the company's actual free cash flow (a factor I always like to see in my stocks.) Tyco's also said to be very willing to make a deal at the right price, which suggests management could soon unlock its value -- if not by selling to Schneider, then perhaps to someone else.

Time to chime in
Selling for less than 13 times annual free cash flow, with a forward growth rate likewise near 13%, Tyco shares look priced to move. Meanwhile, even if no deal gets done immediately, the company's 2.2% dividend yield means shareholders are being well-compensated for their patience as they wait for a good offer to emerge. Long story short, I think this stock could bounce ... eventually.

Of course, that's just my opinion. What's yours? Click over to Motley Fool CAPS now, and tell us what you think.