Get Ready for the Bounce

"Don't catch a falling knife." Thus commandeth the old saw (to mix a cutlery metaphor).

But if people weren't tempted to catch cutlery in the first place, there'd be no need for this little bit of investing wisdom, would there? The idea of buying a former highflier at a discount price certainly has its attractions. The trick, of course, is to increase the odds that when you make your grab, you're catching haft, not blade. That's where we come in.

In The Motley Fool's continuing effort to keep your investing dollars safe, today we once again assume our position beneath Mr. Market's silverware drawer. As the knives plummet, we'll measure who's fallen farthest. Then we'll head over to Motley Fool CAPS, and ask which of these stocks Foolish investors think are ready to rebound to new highs -- if any.

With that said, let's meet today's list of contenders, drawn from the latest "52-week low list" at Nasdaq.com:

Knives and knaves
Once again, our list proves the converse of the "everybody loves a winner" maxim. When a stock falls on hard times, its popularity evaporates right quick. And so it is that of the seven companies named above, only one earns an above-average rating from CAPS investors.

Ready to bounce?
That company: pharmacy services provider Omnicare. With four stars, and 113 CAPS endorsements (including 37 All-Stars) to its name, CAPS players seem to like Omnicare a lot -- Friday's disappointing earnings report and earnings warning notwithstanding.

On Friday, Omnicare reported that a 5% decline in quarterly revenues led to a 19% fall in net income. Worse, it predicted full-year per-share earnings fully 15% lower than Wall Street was expecting. Hardly the best of news, so why is it, precisely, that CAPS investors love this stock?

• pomskua thinks that Friday's result was "an overreaction to poor Q1 results. This leading company is in a field where aging boomers will be a driving factor for decades."
• CAPS All-Star PearlandTX agrees, arguing that Omnicare's is a "naturally strong sector -- geriatric pharmaceutical services. People are living longer and increasing their reliance pharma to maintain quality of life."
• CAPS newcomer turtleman621 foreshadowed Friday's results six months ago, observing that "Every two years or so the stock tumbles on bad news that really doesn't impact long term earnings. If you buy it after the tumble you make big money." Why? Because "This company has great margins and great earnings growth, and sells at a very modest multiple."

Time to chime in
It's hard to argue that the demographic trends don't favor Omnicare. People are going to get old. They're going to wind up in nursing homes. And they're going to need their drugs to stay healthy. But the question investors must ask is whether the price is right. After falling 15% in a day, Omnicare's shares are still priced at 15 times its own projection for this year's earnings -- a current PEG ratio of exactly 1.0. Can the shares bounce from this level, or are they more likely to just flatline?

The Fool's own Philip Durell, lead analyst at Motley Fool Inside Value, thinks they can. In fact, he thinks these shares are currently about 35% undervalued (take a free trial to the newsletter to find out why). Do you agree? Come on down to Motley Fool CAPS and tell us what you think.

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 273rd out of more than 28,000 raters. The Fool's disclosure policy has a talent for juggling knives.