4 Superball Stocks: InterOil Corporation (USA) (IOC), CVR Partners LP (UAN), Rentech Nitrogen Partners LP (RNF)

When stocks fall fast and far, they sometimes set themselves up for remarkable rebounds. The following equities suffered dramatic drops over the past week. With help from the 180,000 members of Motley Fool CAPS, we’ll see whether any of them have the potential to bounce back.

It’s been a while, but thanks to last week’s sell-off, we once again have a chance to stand beneath Mr. Market’s silverware drawer in hopes of snagging a bargain. Let’s meet today’s contenders.

Companies are selected by screening on finviz.com for abrupt 5% or greater price drops last week. Recent price and 52-week-high data provided by finviz.com. CAPS ratings from Motley Fool CAPS.

Five super falls — one superball
After 10 straight days of hitting record highs, the Dow Jones Industrial Average finally took a breather on Friday, falling 25 points — but still ending up 0.8% for the week. After a run like this one, you’d think most investors would be sitting pretty right now and counting the money from two straight weeks of capital gains.

You might even be right about that — yet “most investors” isn’t the same thing as “all investors.” Fact is, the owners of more than 2,700 separate stocks actually exited last week poorer than they went into it, as their stocks declined in value. But why?

The answers aren’t always clear. For example, InterOil Corporation (USA) (NYSE:IOC) recently got a vote of confidence in its Elk and Antelope natural gas fields, when the host government of Papua New Guinea confirmed that it was taking a big stake in the projects. The stock received an upgrade from TheStreet.com last week as well, and a positive mention from Westlake Securities on Wednesday, yet the shares shed 7% of their value last week regardless. Similarly, shares of cancer-vaccine maker Dendreon are down $0.50 — 8.5% — despite reporting no bad news whatsoever last week.

In contrast, while bad news was similarly absent at Rentech Nitrogen Partners LP (NYSE:RNF) last week, there’s at least some basis for the selling we saw there. The fertilizer producer is due to report earnings on Tuesday, and while analysts forecast earnings growth over last year, investors may be worried Rentech Nitrogen Partners LP (NYSE:RNF) will fail to grow as much as the Street forecasts. Of course, that doesn’t explain the similar sell-off at fellow nitrogen specialist CVR Partners LP (NYSE:UAN). That won reported earnings last month, beat estimates then, and isn’t due for another earnings report until late April. Is that fair?

The bull case for CVR Partners LP (NYSE:UAN)

Perhaps not — at least not in the estimation of CAPS investors, who give CVR Partners LP (NYSE:UAN) a Fool complement of five CAPS stars. CAPS All-Star TMFDeej likes the 3.1% dividend yield at CVR and is biding his time in hopes the company will further increase its fertilizer production capacity.

CAPS member PublicWireless calls the company “very profitable” and says it has a “sound balance sheet …. Great dividend.”

All-Star investor DrGoldin notes that “if you … account for the large (and solid) dividend, this looks like a healthy investment.”

Yet is it the best investment for your money? If truth be told, I’m not sure it is. In fact, I’m not even sure it’s the best investment in the fertilizer industry. Consider: While 16 times earnings isn’t a lot to pay for a 12% long-term grower with a 3.1% dividend yield, the fact remains that CVR Partners LP (NYSE:UAN)isn’t generating a lot of cash from its business right now. True free cash flow at the company over the past year amounted to only $51 million — less than half CVR Partners LP (NYSE:UAN)’s reported $112 million in GAAP profits.

Seems to me a better way to invest in fertilizer would be to buy shares of a company such as CF Industries Holdings, Inc. (NYSE:CF) instead. Although CF isn’t growing as fast as CVR Partners LP (NYSE:UAN) (only 4% per year) and doesn’t pay as big of a dividend (only 0.8%), CF Industries Holdings, Inc. (NYSE:CF) nonetheless has several attributes that make it more attractive to me as an investment:

More cash on the balance sheet — $680 million net of debt.

A lower P/E ratio — at 7.1 times earnings, CF Industries Holdings, Inc. (NYSE:CF) costs barely half the valuation of CVR Partners LP (NYSE:UAN).

And best of all, superior quality of earnings. CF Industries Holdings, Inc. (NYSE:CF)’s $1.85 billion in trailing free cash flow is actually a small fraction of a percent more than the GAAP income it reports. And that’s a whole lot better than 50% less.

Long story short, while I wouldn’t necessarily short CVR Partners, I’d be much more likely to go long CF Industries Holdings, Inc. (NYSE:CF).

The article 4 Superball Stocks originally appeared on Fool.com.

Fool contributor Rich Smith does not own, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he’s currently ranked No. 336 out of more than 180,000 members. The Motley Fool owns shares of CF Industries Holdings, Inc. (NYSE:CF) and Dendreon Corporation (NASDAQ:DNDN).

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