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 Lows" list at Nasdaq.com:

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 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.

How long will it take? No one knows. But as we're already several percent into the latest market downturn, it can't hurt to start sifting through the wreckage. Maybe we'll find something worth buying today -- maybe just a few ideas we can revisit if the stocks get cheaper still. Either way, today's choice is made easy by the presence of only one above-average-rated stock on the list. Even better, this company bears the stamp of approval of the Motley Fool's premier small-cap investing newsletter, Motley Fool Hidden Gems.

So without further ado, ladies, and gentle-Fools, let's review ...

The bull case for CryptoLogic
With nearly 1,300 ratings to its name, CryptoLogic is No. 67 on the list of most-rated stocks in CAPS-land. Ninety-four percent of All-Star investors polled think the company will outperform the S&P 500 going forward, and nearly 300 Fools have chimed in with substantive "pitches" on why they think that is (or isn't) likely. Here are a few culled from the ranks of our very best investors, the CAPS All-Stars:

• DSupaSage introduces us to CryptoLogic as: "An online gaming software provider. Pummelled by the prospect of losing 30% of its revenues stemming from new U.S. legislation, it is likely that 'work arounds' will allow U.S. residents to continue to play poker and casino games in the future."
• What legislation is that, you ask? Allow rbgibbons to explain: There was an "overreaction to the news of the passage of the Anti Internet Gambling act." Yet "the company still has piles of cash and most of its customers aren't actually in the U.S. I think the bigger fear should be losses of customers, since such an event really could impact the business. But over all, the potential reward seems disproportionately high compared to the risk."
• And the absolute best, most succinct pitch in favor of CryptoLogic (in my view) comes courtesy of hlacheen, who writes: "Cryptologic Inc. is an incredibly strong company from a financial standpoint. It is a cash generating dividend payer with little to no debt. These are rare attributes for a cheap, small-cap stock. Concerns over U.S. legislation are [exaggerated], and if laws against online gambling are passed, Cryptologic still has international revenues (over 65% of its business is non-U.S.) to count on."

If none of the above suffices to convince you that CryptoLogic has significant bounce potential, then consider also that at its current price, the stock sells for less than 15 times trailing earnings, and is expected to grow those earnings at 20% per year going forward. Leave your calculators under your desks, students. I've already worked it out for you: That's a PEG of 0.7.

Now clearly, Wall Street isn't hot on the stock at the moment (it is, after all, down 20% in price over the last 52 weeks). But patient Fools can afford to wait on this one's revival. In fact, its 2.3% dividend yield might even make the wait a pleasant one.

Time to chime in
Convinced yet? Or still worried that CryptoLogic has further to fall? Whichever way you lean on the issue, make sure to stop by 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 328 out of more than 60,000 players. CryptoLogic and Stanley Furniture are Hidden Gems newsletter recommendations. Shuffle Master is a Stock Advisor selection. Rent-A-Center is an Inside Value pick. The Fool has a disclosure policy.