Get Ready for the Bounce

"Don't catch a falling knife," as the old saw commands. (Pardon my mixing a cutlery metaphor.) 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 where Motley Fool CAPS comes in.

Today, we once again stand beneath Mr. Market's silverware drawer, measuring which knives have fallen the farthest. Then we'll call on CAPS to ask which of these stocks -- if any -- Foolish investors believe are ready for a rebound. Let's meet today's list of contenders, drawn from the latest "52-Week Lows" list at WSJ.com:

Companies are selected from the "New Highs & Lows" list published on WSJ.com on the Saturday following close of trading last week. 52-week high and recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Knives and knaves
If there's one good thing about a broad-based market sell-off, it's that you find a lot of terrific companies getting the ol' baby 'n' bathwater treatment. Tossed out on their rosy little bums as if they were bums of another sort. You know -- just know -- that some of these babies are gonna bounce right back once the suds subside.

And what a batch of bargains we have this week! Chicago Mercantile? Pepsi? Dow? Some of the best companies on the planet -- 5-star rated each and every one -- are going for fire sale prices. And yet, the stock I'm going to profile for you today is actually one of the four-stars on the list. Why? Because to my Foolish eye, Adobe offers us the best bargain of the lot.

Before I tell you why, though, let's see what Fools are saying about ...

The bull case for Adobe Systems 

• Says webbmark1: "Adobe rules the graphics world. They have evolved into a platform. You don't buy on software title, you buy a suite of them that all work together. The better you [become] at one of them the more valuable the others become. There really is no competitor to Adobe in the professional graphics marketplace." Indeed, when you compare Adobe's gross margins to those of rivals like Microsoft (NASDAQ:MSFT) and Oracle (NASDAQ:ORCL), Adobe leaves the competition in the dust, easily outpacing these companies by 10 percentage points each.
• plagjr heartily agrees, pointing to the company's: "nearly 100% market share with Acrobat - a product on 95% of world's personal computers. dominant position with Flash, tremendous track record with innovation and strong management team." plagjr also likes the  "solid balance sheet, valuation well-below earnings growth potential."
• In October, CAPS All-Star pinnaclels put it all in perspective for us: "I've watched this company become a virtual monopoly in the web development area for media based companies. Their biggest competitor was Macromedia and they bought them. I don't see any other products on the market that have a hope of overtaking them in the short term and their advancements year over year with their software has users scrambling to be upgraded."

So why is this virtual monopoly, this 95%-to-100% market share owner, this company with the great balance sheet and superb earnings, selling for rock- bottom prices today? In part, it's due to pessimistic analyst forecasts like the one Friedman Billings Ramsey (FBR) voiced earlier this month. Warning that "the eye of the economic storm has yet to pass for Adobe," FBR sees the recession hurting tech spending greatly in the year to come, and predicts Adobe will earn only $1.70 this year, versus the $1.80 that the rest of Wall Street expects.

But here's the thing: Even if FBR is 100% right in its prognosis, Adobe remains cheap.

Right now, Wall Street expects 16% long-term growth out of Adobe. Yet the company generated nearly $1.2 billion in cash profits last year, and so is selling for less than nine times its trailing free cash flow. You'd have to chop Wall Street estimates nearly in half -- not just whittle away 6% as FBR has done -- to make this stock anything but an apparent screaming bargain.

Time to chime in
Will Adobe suffer along with the rest of the tech world in a drawn-out recession? I've no doubt it will. But the company boasts more than $2 billion cash on its balance sheet, versus just $350 million in long-term debt. So I also have no doubt it will survive these troubled times to see the end of the recession, and a resumption of growth.

Disagree? Hey, feel free. Just do us a favor and don't keep your thoughts to yourself. If you think Adobe's as much of a dog as FBR appears to believe, come on over to Motley Fool CAPS and clue us in on the whys and wherefores.

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