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 the farthest. Then we'll head over to Motley Fool CAPS and ask which of these stocks, if any, Foolish investors think are ready to rebound to new highs.

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 percentage points into the latest market downturn, it can't hurt to start sifting through the wreckage. Perhaps we'll find something worth buying today -- or maybe there will be 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, it's a well-known blue chip with an established record of outperformance over the long term.

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

The bull case for Genentech
With more than 1,000 ratings to its name, Genentech makes it onto the list of top 100 most-rated stocks in CAPS-land by the skin of its teeth -- right on the edge at No. 100.

A full 94% of All-Star investors polled think the company will outperform the S&P 500 going forward, and nearly 200 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:

• DatabaseBob observes: "Cash Flow has been growing at a solid rate, but the stock is flat for almost two years. At some point, the stock price will rise with cash flow; I think that will happen soon."
• Seemingly responding to Bob's concerns, Gtrinvestor opines: "This company grows in spurts, based upon the release of new products. While it has underperformed the S&P over the past 2 years, my guess is that they will again come up w/ something to boost the stock to the next level."
• What might provide that boost? grow76 argues that it doesn't really matter, since Genentech is a "Biotech leader that has an arsenal of drugs making a large pile of money. Drugs like Avastin are being applied to new cancers the drug was not originally targeted for with success. This company has a very bright future." But if it's a catalyst you're after, grow76 suggests that Genentech "Will probably acquire some smaller biotechs with promise over the next several years."

What say we put some numbers to the sentiments expressed above? First off, Genentech trades for 29 times trailing earnings. Pricey? Perhaps not. When weighed against the 27%-per-year profits growth that analysts anticipate going forward, and the 50% compound growth rate Genentech has racked up over the past five years, a multiple to earnings of 29 looks far from unreasonable. I'd typically hesitate to call anything that's trading for nearly twice the market's multiple "cheap" -- but Genentech does look cheap.

On the other hand, I'm less sanguine on our All-Stars' pointing to Genentech's strong cash flows as a reason for buying the stock. Fact is, Genentech spends an awful lot of money on capital expenditures, which eat away at cash flow right quick. How quick? Quick enough to chop the firm's free cash flow down to $1.5 billion over the past 12 months, and to give the stock a multiple to free cash flow of 50. If you're looking for a reason not to buy the stock, there it is for you.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about Genentech -- or even what our All-Stars are saying. We also want to hear what you know about the company. Do you see capital expenditures moderating in the near future? Do you believe the price-to-earnings ratio is a better measuring stick than price-to-free cash flow? If you've got an opinion, we've got a place to voice it.

Motley Fool CAPS: It's fun, it's free, and it just might make you famous.

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. 230 out of more than 60,000 players. The Fool has a disclosure policy.