Drop-Dead Gorgeous Stocks

"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."

That's the thesis of my weekly column "Get Ready for the Bounce," where I filter Nasdaq.com's 52-week-low list through the collective wisdom of Motley Fool CAPS. The result: a list of stocks that have fallen so far, Foolish investors figure they're just bound to bounce back soon.

And if a stock that has fallen for one year straight has headroom, perhaps a stock that's fallen even farther, and longer, has room to soar back even higher. In that case, an apparently left-for-dead stock could offer us a drop-dead gorgeous entry price. We're going to test that thesis today, starting with five stocks that just hit their five-year lows:

Company

Recent Price

CAPS Rating

(5 max):

Compania de Telecommunicaciones de Chile S.A. (NYSE: CTC  )

$5.68

*****

U.S. Auto Parts  (Nasdaq: PRTS  )

$3.56

**        

JetBlue Airways  (Nasdaq: JBLU  )

$3.70

**

Ford (NYSE: F  )

$5.07

*

UAL  (Nasdaq: UAUA  )

$5.56

*

Companies are selected from the "New 5-Year Lows" list published on MSN Money on Thursday. CAPS ratings from Motley Fool CAPS.

Left for dead? Or drop-dead gorgeous?
Each of the stocks listed above has shed between 35% and 85% of its value over the past year alone, and currently sits at or near its five-year low. Wall Street has left 'em for dead, but Main Street investors think at least one of these stocks is sufficiently removed from the U.S. economy and the accompanying perils posed by high fuel prices.

And you must admit -- if fleeing the looming U.S. recession is your goal, you can't get much farther away than Compania de Telecommunicaciones de Chile (CTC). The name is quite a mouthful, but then again, with a location right next door to Antarctica, this company is a long, long way from home.

Far enough away, perhaps, that you may not know a lot about it. So let's get better acquainted with ...

The bull case for Compania de Telecommunicaciones de Chile
CAPS All-Star NetscribeTelecom introduced us to CTC back in May 2007:

Chile's largest fixed-line telephone company is rapidly diversifying its business to broadband and pay-television services. Company recently announced its plans to ... recast the company as a multi-service provider. The CEO said its strategy is to invest two of every three dollars toward growing the company's broadband and television businesses and the packaging of those services.

Several CAPS players gave shouts-out to CTC's monster dividends back in 2006 -- and in fact, the stock was once a Motley Fool Income Investor recommendation. It's since been removed from the portfolio, however, and Netscribe gives us one clue why: "CTC has recently planned to change its policy, which calls for 100% of net profit to be paid in dividends."

Netscribe also cautioned last year that "average number of lines in service is continuously declining." No longer. Fellow CAPS All-Star aalvarma affirmed in March 2008 that the company "stopped in the last quarter its long downward term on subscribers and is deploying a succesful cross-selling plan (broadband, pay TV, telephone)." aalvarma goes on to call CTC "a genuine cash cow ... at bargain valuations and showing a breaking point in the lackluster results of recent years...."

Now, personally, I think CTC's most recent results -- 1% revenue growth, 8% profits decline in domestic currency -- actually are a bit "lackluster." As far as Chile is from America, CTC's even farther from the blockbuster results of Latin American neighbors like Petrobras (NYSE: PBR  ) and Mercadolibre (Nasdaq: MELI  ) . And as for CTC's 64 P/E, well, I hesitate to call that one a "bargain valuation" myself.

That said, aalvarma is right on the money (literally) in calling CTC a cash cow. Look past the firm's GAAP financials to its cash flow statement, and you'll see that over the last 12 months, CTC has generated free cash flow of more than seven times its reported net earnings.

Assuming cash generation keeps pace with earnings, CTC should have a bright future on the other side.

Time to chime in
You've heard what your fellow investors have to say about Compania de Telecommunicaciones de Chile S.A. You've heard my thoughts, too. Now, we want to hear what you think. Click on over to Motley Fool CAPS, and tell us whether GrenTech's can pull out of its five-year slump.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 2,511 out of more than 110,000 players. Petrobras is a Motley Fool Income Investor pick. The Fool has a disclosure policy.


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